China Weakness = Lower Interest Rates For Longer

Last Thursday America's Federal Reserve announced that it was maintaining interest rates at their historic low levels. On the face of it the decision seems puzzling.

The Fed had been hinting for several months that US interest rates were likely to rise this year. The US economy rebounded strongly in the second quarter and economists have been raising their forecast for US growth this year and next. The Fed's 17th September meeting has looked, for some time, like the most probable date for America's first rate hike in 9 years.

That rates stayed on hold indicates growing concern among policymakers about the effects on America's recovery of the slowdown in emerging economies, especially China, and recent equity market weakness.