Federal Reserve Rates and the Chinese Market Cause for Cautious Trading

By Zachary Laubernds,   
Money and Investing Writer

fed rates

Amid growing concerns of a plummeting Chinese stock market in the last few weeks, the New York Stock Exchange has seen very uncharacteristic caution on the trading floor.

The Shanghai Composite exchange dropped 6.2 percent and is nearing a level under 3,000 points. This 3,000 point benchmark is seen to be a critical level for psychological market stability.

Repercussions of the extremely volatile Chinese market have been felt around the globe as the NYSE, Australian Securities Exchange (ASX) and Hong Kong’s Hang Seng Index (HSI) have all experienced unusual fluctuations.

On top of a looming Chinese financial crisis, the anticipation of the United States Federal Reserve’s decision to leave overnight lending rates unchanged had caused uncertainty in the global markets.

With this decision to leave rates unchanged the markets should somewhat normalize within the coming days, as focus shifts back to the unpredictable Chinese market.

Just hours after the decision was announced global markets began trading higher after a brief fluctuation.

After a “no change” decision by the fed, economists are predicted that there won’t be a full rate hike until March 2016.

The Federal Reserve credited its decision to leave rates unchanged to the opacity of the situation in China and other uncertainties overseas, presumably the instability of the Greek economy and its effects on the rest on the European Union, along with other matters of economic concern.

A combination of the volatile Chinese markets, the instability and uncertainty of the European Union’s economic state due to the Greek debt crisis and the uncertainty of U.S. borrowing rates have kept investors cautious over the past few weeks.

The caution that has been exhibited in the U.S. market this year is uncharacteristic, and many economists are laying the blame on the Federal Reserve for the uncertainty of rate changes, but the Fed makes its decisions based on the stability of the global economy.

So the uncertainty of rate changes is really an effect rather than a cause.

With a decision handed down from the Federal Reserve on Thursday keeping rates the same; There are hopes that investors will begin trading at normal rates now that there is no longer uncertainty about U.S. lending rates.

Many political figures are happy with the decision, Presidential Candidate Bernie Williams said:
“It is good news that the Federal Reserve did not raise interest rates today. At a time when real unemployment is over 10 percent, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people. It is now time for the Fed to act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago.”

In today’s world of increased globalization the decisions made by economic governing bodies are very important to the rest of the world’s economy.

The world’s most powerful economies will now turn their eyes back towards China and its struggling markets in hopes that its rapidly growing economic system can be controlled and stabilized.

The world’s markets will continue to be more cautiously traded until that can happen.

A version of this article appeared in the Tuesday, September 22nd print edition.

Contact Zack at
zachary.laubernds@student.shu.edu

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