On August 7, FOMC left the lending rate unchanged at the end of a 2-day meeting at 5.25% for the ninth time after 17 continuous hikes which lasted over 2 years. Thus, interest rates have been flat for more than a year since June 29, 2006.
The wording of the statement was largely the same as before and the Fed still views inflation as the dominating risk for the US economy, although signs of a slowdown in economic growth have been shaping up and the housing market remains unstable. The Fed's spokespersons expressed confidence that the economy will continue to expand at a moderate pace over the next several quarters.
The Fed's statement was released against the backdrop of high volatility on US markets. Amid instability on the housing market and signs of a slowdown in the world's largest economy, market participants expected to see in the Fed's statement clues about plans to support the weaker economy. However, the Fed's spokespersons again pointed to the importance of reining in inflation which could not but disappoint investors. However, the Fed's confidence that the economic growth will continue made market participants upbeat and US stock indexes closed in positive territory.
According to our estimates, the Fed's decision and the statement, given signs of a slowdown in the US economy and a downtrend on global capital markets, decreases the likelihood of an interest rate cut in the foreseeable future. We view this development as moderately negative for the Russian stock market, although its impact could be offset by an upturn on US and Asian markets.
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