The Economy

Fed Leaves Benchmark Interest Rate Unchanged

With recent economic indicators mixed, a "cautious approach to adjusting monetary policy remains appropriate," the Fed says.
Matthew HellerJune 15, 2016
Fed Leaves Benchmark Interest Rate Unchanged

The U.S. Federal Reserve on Wednesday held short-term interest rates steady, deferring another increase amid fears of a slowing U.S. economy and global instability.

When it hiked rates in December, the Fed predicted four rate increases this year. But the central bank’s policymakers voted unanimously at their June meeting to “maintain the target range for the federal funds rate at 1/4 to 1/2 percent.”

“Recent economic indicators have been mixed, suggesting that our cautious approach to adjusting monetary policy remains appropriate,” Fed Chair Janet Yellen told a news conference.

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.”

Another concern is Britain’s upcoming vote on whether to stay in the European Union. The possible “Brexit” is a “decision that could have consequences for economic and financial conditions in global financial markets,” Yellen said.

According to the New York Times, investors already are heavily discounting the chances of a rate increase at the Fed’s next meeting in July, or at the following meeting in September. The Fed’s latest projections show 15 of its 17 policy makers now expect no more than two increases this year, and six of those officials predicted just one.

“Even more striking, the median prediction of Fed officials was that the central bank’s benchmark rate would rise to just 2.4 percent by the end of 2018, down from the March median of 3 percent,” the Times said. “That suggests officials increasingly regard mediocre global economic growth as an enduring malaise.”

Yellen said a rate hike could come as soon as next month if job growth rebounds. “We should not over-blow the significance of one data point, especially when other indicators of the labor market are still flashing green,” she told reporters.

But the median forecast released Wednesday is for a 1.6% rate at the end of next year and 2.4% at the end of 2018, well short of the last estimate in March.

“I think it is primarily non-U.S. economic factors that are holding the Fed back from hiking,” John Vail, chief global strategist at Nikko Asset Management, told Fortune.

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