The Fed must ignore accusations of dithering over interest rates

The Federal Reserve will likely start raising rates in December, but monetary tightening will be motivated by concerns about financial stability, not inflation

The US Federal Reserve's decision to delay an increase in interest rates should have come as no surprise to anyone who has been paying attention to Fed chair Janet Yellen's comments. The Fed's decision has merely confirmed that it is not indifferent to international financial stress, and that its risk-management approach remains strongly biased in favour of "lower for longer". So why did the markets and media behave as if the Fed's action - or, more precisely, inaction - was unexpected?

What really shocked the markets was not the Fed's decision to maintain zero interest rates for a few more months, but the statement that accompanied it. The Fed revealed it was unconcerned about the risks of higher inflation and was eager to push unemployment below what most economists regard as its natural rate of about 5%.