The US Federal Reserve has said “consequences” for financial markets surrounding the UK’s Brexit vote was a factor behind its decision not to raise interest rates. “The stance of monetary policy remains accommodative, thereby supporting further improvement in labour market conditions and a return to 2 per cent inflation”, Fed chair Janet Yellen said in her policy review.
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But the policy panel remained confident enough in hiring resuming a solid pace, and in inflation picking up, that it indicated it still expected that the Fed funds rate would be increased twice over the next six months to near 1.0%.
The central bank raised rates in December for the first time in almost a decade and initially signaled four increases were likely for 2016.
Members of the FOMC maintained their collective outlook for two rate hikes by the end of 2016, but lowered forecasts for rate rises over the next two years.
The benckmark rate was hiked in December after seven years at an unprecedented near-zero range.
The expectations for rate hikes in future years did slow: The median forecast shows just three hikes in 2017 and three in 2018, down from an expectation of four for each year.
Janet Yellen after the Fed’s open market committee meeting on Wednesday.
Yellen cautioned that the Fed is watching what happens to U.S.jobs very closely but said officials are taking a longer view than just May’s report.
Jobs market and expected inflation – causes of concern for the central bank. Overall, Yellen and the committee wanted reassurance over labour-market trends, although she appeared generally optimistic over the employment and wider economic situation.
U.S. stocks initially added to gains following the Fed statement on Wednesday but ended lower amid concerns about economic growth.
She cited the surprising slowdown in job growth last month, adding, “We need to assure ourselves that the underlying momentum in the economy has not diminished”. As expected, the Fed kept benchmark interest rates unchanged.
The U.S. central bank is scheduled to issue its latest policy statement and updated economic projections following a two-day meeting at 2 p.m. EDT (1800 GMT).
One global factor is the vote in the United Kingdom later this month on whether Great Britain will exit the European Union.
Many investors think the BOJ would prefer to keep its powder dry for possible market disruption if British voters decide to leave the European Union in a referendum a week from now.
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Of course, China’s slowing economy and currency moves, along with low oil prices, continue to remain long-term risks for the Fed’s outlook. The safe-haven yen and Swiss franc lost some ground, though, as a poll gave Britain’s “Remain” camp a marginal lead ahead of the June 23 referendum on whether to remain in the European Union, although the issue is nearly certain to keep markets cautious up to the last minute.
