The Economy

Fed Dampens Prospects for Imminent Rate Hike

At the same time, Fed officials appear convinced that the first-quarter slowdown was due to "transitory" effects.
Matthew HellerApril 30, 2015

The U.S. Federal Reserve has again signaled it is no hurry to raise interest rates, continuing to take a cautious approach amid uncertainty over economic growth.

After its latest meeting, the Fed’s policy-making committee announced Wednesday that the current, historically low 0-0.25% target range for the federal funds rate “remains appropriate” to “support continued progress toward maximum employment and price stability.”

According to the announcement, the timing of a rate hike depends on progress toward the Fed’s objectives of maximum employment and 2% inflation.

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“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” it said.

Last month, the Fed said it was unlikely to raise rates at its April meeting, leaving a June hike at least theoretically possible depending on economic conditions. Its latest statement, The Guardian reports, left financial markets convinced there would be no increase before September at the earliest.

Federal Funds Rate – Adjustments Over Time | Credio

“A stalling of U.S. economic growth at the start of the year rules out any imminent hiking of interest rates by the Fed,” said Chris Williamson of financial data provider Markit.

Just hours before the Fed’s statement, the Commerce Department reported that first-quarter gross domestic product came in much weaker than expected, growing at a 0.2% annual pace. That’s a sharp slowdown from the 2.2% growth in the fourth quarter and well below the 1% rate economists had projected.

“Most Fed officials appear to share our view that this is a temporary slowdown, albeit a more severe deceleration than we previously anticipated,” Paul Ashworth, the chief U.S. economist at Capital Economics, said. “Accordingly, while it might delay the timing of the first rate hike, we still anticipate a lift-off later this year.”

Some liberal politicians and activists have expressed fears that the Fed may begin to raise interest rates prematurely, arguing that it should wait until it sees evidence that inflation is climbing back toward 2%.