Although the Federal Open Market Committee left interest rates unchanged they have left the door open to hikes later in the year, despite downgrading their economic projections.
The central bank’s decision to leave interest rates in its range between 0.25 and 0.50% was widely expected by the market and economists.
In the statement, the central bank was fairly more optimistic on the U.S. economy, downplaying the impact global market volatility has had on U.S. growth.
“[E]conomic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months,” the statement said.
The central bank highlighted concerns about weak inflation but also reiterated that it sees price pressures eventually rising back to its 2.0% target.
“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal,” the statement continued. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
As expected, the central bank has lowered its projections of future rate hikes for this year. In December, the central bank was fairly aggressive with members expecting to see four rate hikes in 2016. Those projections have now dropped to an average Fed Funds rate of 0.9% by year end, compared to December’s forecast of 1.4%. In other words, the central bank now forecasts only two rate increases this year.
Reference: Kitco, Federalreserve
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