Fed Leaves Rates Unchanged, Sees 2 Hikes This Year

Mar 16, 2016 3:45 PM by News Staff

A dovish Federal Reserve held the line on interest rates Wednesday and substantially scaled back its expectations for further moves ahead.

Where the U.S. central bank at its December meeting had projected four rate hikes in 2016, new estimates released Wednesday reduced that number to two. Fed officials also cut their expectations for economic growth and inflation.

In addition to the two rate increases this year, the Federal Open Market Committee now projects just two hikes in 2017, according to the latest Summary of Economic Projections.

The current interest rate target is 0.25 to 0.5 percent, and Fed officials back in December had expected the upper level to rise to 1.4 percent by year's end. With the new projections, the FOMC now sees just a 0.9 percent funds rate in 2016 and a 1.9 percent level by the end of 2017, both reflecting cuts of half a percentage point.

The projections were included on the so-called dot plot, a graph that shows where individual members see the Fed's interest rate target each year. There was a considerable shift lower in the latest estimates.

The Fed also cut its GDP growth outlook for 2016 from 2.4 percent to 2.2 percent and reduced 2017's call from 2.2 percent to 2.1 percent.

Despite recent public comments from some members indicating that a rate hike was appropriate, the FOMC approved the decision 9-1. Only the Kansas City Fed's Esther George dissented; she wanted to hike rates at this meeting.

In the statement, the committee referenced "global and financial developments (that) continue to pose risks," language that contrasted to the December statement, which said the committee was only "closely monitoring" those conditions.

The committee saw household spending "increasing at a moderate rate," while housing "has improved further." The statement did not address the "balance of risks" issue included following some previous meetings.


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