Evidence that the US neutral rate of interest remains stalled near zero may slow Federal Reserve rate hikes even more than expected, tying the hands of policymakers until a rebound in global demand or other forces raise that key measure of the economy’s underlying strength. The central bank left the target range for the benchmark federal funds rate unchanged.
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“Although the unemployment rate has declined, job gains have diminished”, the Fed said.
She said there would be “consequences for economic and financial conditions in global financial markets” but did not elaborate on whether that would be only evident in the event of an Out vote.
In a statement released after the meeting, Fed officials gave a mixed assessment about the U.S. economy, saying that the labour market has slowed its improvement pace, while growth in economic activity appeared to have picked up since April.
In a press conference after the FOMC meeting, Fed Chair Janet Yellen said the June 23 referendum in the United Kingdom on whether to remain in the European Union influenced the usa central bank’s decision to keep interest rates unchanged.
The world’s most powerful central bank pegged its benchmark rate at between 0.25 per cent and 0.5 per cent as it trimmed its economic growth forecasts for this year and next.
Another concern is Britain’s upcoming vote on whether to stay in the European Union.
The Fed holds eight monetary policy-setting meetings a year and has four remaining in 2016. They now expect just 2 percent growth both this year and next year, down from their previous forecast of 2.2 percent for this year and 2.1 percent for 2017. “Today’s decision by the Federal Reserve to keep interest rates unchanged was the right one”, wrote policy director Josh Bivens. Only one Fed policymaker had done so when economic forecasts were last issued in March. Overall, it has become increasingly likely that the unswervingly cautious Fed will continue to postpone another rate hike until significantly later in the year, at best.
January 28, 2015: “The current 0 to 1/4 percent target range for the federal funds rate remains appropriate….”
Moreover, the USA central bank eliminated the following sentence from its recent statement: “a range of recent indicators, including strong job gains, points to additional strengthening of the labor market”.
Its chairwoman, Janet Yellen, acknowledged the need to see clear signs of economic strength before lifting rates. Concerns about a global economic slowdown and volatility in financial markets subsequently reduced that number to two. “It’s not impossible that by July, for example, we would see data that led us to believe that we are in a perfectly fine course”.
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The key consideration in this decision was the U.S. jobs market – with a little help from the uncertainties arising from the forthcoming British referendum and a few other factors. A separate survey last week showed that analysts projected two rate increases this year, while they were divided over whether the next hike would occur in July or September. The Fed put any further rate changes on hold.
