16 Mar 2016
Fed keeps rates unchanged as expected, lowers rate hike expectations
As expected, the US central bank left interest rates unchanged at 0.25% - 0.50%. There were little changes to the statement from the January meeting. According to the staff projections the FED is likely to raise rates only two times in 2016. Attention turns to Janet Yellen.
According to the statement, since January, the “economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft.” The FED added that global economic and financial developments “continue to pose risks”.
“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”, the US central bank said in the statement repeating the message.
The vote was not unanimous. Esther L. George, voted against the decision of the FOMC and preferred to raise the target range for the Fed Funds rate to 0.50% - 0.75%.
New staff projections
The new FOMC projections now see 2 rate hikes during 2016, instead of the four previously expected. Growth projections were lowered from a median of 2.4% to 2.2% for 2016 and inflation measured by Personal Consumption Expenditures (PCE) was lowered to 1.2% from 1.6%.
The US dollar dropped across the board after the statement and the new projections that signaled a more gradual normalization process in monetary policy compared to December and more in line with market expectations.
According to the statement, since January, the “economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft.” The FED added that global economic and financial developments “continue to pose risks”.
“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”, the US central bank said in the statement repeating the message.
The vote was not unanimous. Esther L. George, voted against the decision of the FOMC and preferred to raise the target range for the Fed Funds rate to 0.50% - 0.75%.
New staff projections
The new FOMC projections now see 2 rate hikes during 2016, instead of the four previously expected. Growth projections were lowered from a median of 2.4% to 2.2% for 2016 and inflation measured by Personal Consumption Expenditures (PCE) was lowered to 1.2% from 1.6%.
The US dollar dropped across the board after the statement and the new projections that signaled a more gradual normalization process in monetary policy compared to December and more in line with market expectations.