The Economy

Fed Still Biding Its Time on Interest Rate Hike

FOMC members also cut their median projections for the central bank's key interest rate to 0.625% for 2015 and 1.875% for 2016.
Matthew HellerMarch 18, 2015
Fed Still Biding Its Time on Interest Rate Hike

The U.S. Federal Reserve said Tuesday it has not decided on when to raise interest rates, choosing to continue keeping a close eye on the economy before it takes the plunge.

Analysts have been expecting a rate hike around June 2015. In a statement released after a two-day meeting of its policy-making committee, the Fed said an increase “remains unlikely” at the committee’s next meeting in April, leaving a June hike at least theoretically possible depending on economic conditions.

“The [Federal Open Market] 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,” the statement said.

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“This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”

In January, the Fed said it could be “patient in beginning to normalize the stance of monetary policy.” The word “patient” was omitted from Tuesday’s statement, but Fed Chair Janet Yellen told reporters, “Just because we removed the word patient from the statement doesn’t mean we’re going to be impatient.”

“The Fed is still on track [to raise rates] but the pace of that increase has been scaled back relative to market expectations,” John Derrick, director of research at U.S. Global Investors, told Reuters.

The central bank noted that “economic growth has moderated somewhat” since January, with inflation falling further below the 2% objective, largely reflecting declines in energy prices.

The FOMC “expects inflation to rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate,” the statement said.

As The New York Times reports, 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%.

“We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,” hedge fund manager Ray Dalio wrote in a note to clients last week.