European stocks have traded lower on September 18 after the Federal Reserve’s decision not to change interest rates, as concerns about the health of the global economy were renewed.
The Federal Reserve made it clear that worries about the global economy had influenced its decision to keep rates on hold.
“The outlook abroad appears to have become less certain,” said Fed chair Janet Yellen, at a news conference.
At lunchtime, the UK’s FTSE 100 was down 66.66 points, or 1%, at 6,120.33.
Bigger falls were seen elsewhere in Europe, with Germany’s Dax index down 2.5% and France’s Cac 40 dropping 2.6%.
Markets could now face a prolonged period of uncertainty as to the direction of US interest rates.
In London, banking stocks saw some of the biggest falls, with Royal Bank of Scotland down 2.6% and Barclays dropping 2.1%.
On the currency markets, the pound rose 0.35% against the dollar to $1.5646, and was up 0.4% against the euro at €1.3684.
Following the Fed’s decision the dollar fell sharply against the yen, dropping below the 120 yen mark. The move hit shares in Japan – particularly among exporting companies – and the country’s Nikkei index closed down 2%.
The Federal Reserve has decided to hold interest rates unchanged, keeping them at the same level since December 2008.
The central bank said nine members of its Federal Open Market Committee voted to hold the key federal funds rate target at 0 to 0.25%.
Committee member Jeffrey Lacker was the only dissenter, favoring a 0.25 percentage point rise.
The Fed hinted that concerns about the strength of the global economy influenced the decision.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the committee said in a statement.
Signs of weaker growth and stock market turmoil in China have led to fear among investors about US economic growth.
The Federal Reserve’s long-term policy is to keep interest rates low until employment levels improve further and the main US inflation rate approaches its 2% target. Inflation is currently at about 1.2% in the US, kept down by cheaper oil and a strong dollar.
The Fed said in its statement that it still wants to see more improvement in the labor market, even though recent data showed the unemployment rate for August was at 5.1%, the lowest since 2008.
It also wants to be “reasonably confident” that inflation will increase.
“The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” it said.
Following the Fed’s announcement, US stocks rose and the dollar fell.
The Dow Jones industrial average was up 0.28%, to 16,786.58, the S&P 500 rose 0.45%, to 2,004.26 and the NASDAQ gained 0.61%, to 4,918.90.
The dollar index, which compares the value of the currency with six other currencies, fell 0.81%, to 94.651.