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U.S. Financial Markets Tentatively Stabilize In September

U.S. Financial Markets Tentatively Stabilize In September by OFR

U.S. financial markets have been more stable in September, following a marked deterioration in August. However, investor risk appetite appears to be weaker than before the sell-offs, U.S. equity valuations remain very high by several metrics, and underlying concerns persist about emerging market growth and financial markets. The Federal Reserve declined to begin raising interest rates at its September monetary policy meeting, citing the slowdown in emerging markets and associated market pressures as a restraint on U.S. growth and inflation. Most members of the monetary policy committee expect to raise rates in 2015, but market-implied expectations for such a move fell below 50 percent.

Developments during the last month

  • Equity markets in the United States and other advanced economies have been more stable in September, though they have drifted lower since mid-month.
  • Oil and corporate bond markets have also been more stable; oil prices and corporate spreads remain near their weakest levels in years.
  • Chinese data confirmed a further economic slowdown and accelerating capital outflows in August.
  • Emerging market currencies and equities deteriorated further, with a severe sell-off in Brazil after Standard and Poor’s cut its sovereign credit rating below investment grade.
  • The Federal Reserve left interest rates unchanged, citing concerns about recent global economic and financial developments. Market participants viewed the decision as more accommodative than expected, leading-market-implied expectations for an interest rate increase in 2015 to fall below 50 percent.