The Federal Reserve said Wednesday that it will NOT raise interest rates this month. The central bank did not provide any hints as to a potential July rate hike.
Moreover, the United States central bank forecasts three interest rate increases in both 2017 and 2018. Six Fed officials predict a single rate hike this year, up from one in the last meeting.
It also slashed its 2016 gross domestic product (GDP) forecast from 2.2 percent to two percent.
Here is the text from the Federal Open Market Committee (FOMC):
Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.
At a later press conference, Yellen stated that it’s important not to focus too much on one or two negative reports. She also noted that a potential Brexit was one of the factors in Wednesday’s decision, adding that a Brexit would have devastating economic and financial consequences for the global economy.
Will there be any more rate hikes this year? If so, how many?
“The committee never discusses how many increases should we have this year or next year,” Yellen said. “That’s not a decision we’re making as a committee. We’re making decisions on a meeting-by-meeting basis.”
If one more rate hike takes place this year, economists are betting on December.
“Right now we think that it is highly probable that there is again one rate hike in 2016, with December again being the most likely date,” economists at Jefferies said.
Soon after the announcement, gold prices spiked more than $1, or 0.8 percent, to $1,296 at the time of this writing.
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