The Fed concluded a closely watched two-day policy meeting on Wednesday by leaving interest rates untouched and signaling fewer rate hikes in coming months as the United States continues to face risks from an uncertain global economy.
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In revisions to its buoyant December forecasts, the FOMC said it expects the USA economy to grow only 2.2 percent this year, compared with 2.4 percent previously.
However, fresh projections from policymakers showed they expected two quarter-point rate hikes by year’s end.
The Fed’s decision Wednesday was approved 9-1, with Esther George, president of the Fed’s Kansas City regional bank, dissenting.
Treasury yields also turned lower, with the 2-year yield dropping to 0.85% and the 10-year yield at 1.91%.
The 30-year bond was, however, down 16/32 in price, yielding 2.746 percent, up from 2.744 percent on Tuesday.
“We do expect over time that neutral rate to move up but, you know, we aren’t positive what the pace of that will be over time”.
“A range of recent indicators, including strong job gains, points to additional strengthening of the labor market”, the FOMC said.
The Fed lowered its estimate for GDP growth to 2.2% from 2.4% and noted that “global economic and financial developments continue to pose risks”.
But inflation has been stuck below the Fed’s target for almost four years. Gas prices average $1.96 a gallon nationwide, 46 cents lower than a year ago. Moreover, “household spending has been increasing at a moderate rate, and the housing sector has improved further”.
After months of volatility on global markets coupled with continued steady domestic economic growth, the Fed’s statement struck a half-empty half-full tone that reflected the broad difference within its ranks. Lower rates are a boon for gold, which becomes more competitive against interest-bearing assets. The U.S. dollar fell against the Turkish Lira, from 2.9134 to 2.8865.
That outlook kept the Fed still headed in the opposite direction of other leading central banks, with the European Central Bank and the Bank of Japan, among others, having cut interest rates into negative territory to fight off deflationary pressures and stagnant growth. A report today showed consumer prices excluding food and fuel climbed more than forecast in February for a second month, adding to signs inflation is moving closer to the central bank’s target.
It is a situation not without inconsistency: the Fed’s official policy statement said inflation had ticked up, policymakers’ individual inflation forecasts ticked down, and Fed Chair Janet Yellen told reporters she was not sure what the data indicated.
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“Our first take on (the Fed statement) is that it probably leans slightly more dovish, relative to expectations”, said Tom Porcelli, chief US economist, at RBC Capital Markets in NY.
