US Federal Reserve stays put on rates, but monitoring inflation closely

Alexander Bueso WebFG News | 16 Mar, 2016 18:11 - Updated: 21:46 | | |

federal reserve, fed, usa,

Rate setters in the US chose to keep interest rates unchanged, referencing continuing risks from global economic and financial developments albeit with a small caveat, they would be closely monitoring inflation developments.

Nonetheless, the interest rate projections submitted by the Fed's policymakers revealed that they now only anticipated two further interest rate hikes in 2016, versus as many as four at the end of 2015.

Some analysts had been expecting those projections to be lowered by less, to between two and three interest rate moves.

FOMC and Fed presidents' rate projections

In remarks during her press conference following Wednesday's decision, Fed chair Janet Yellen said policymakers' individual projections for rate rises in 2016 and 2017 were premised on the assumption that headwinds from abroad would abate over time.

"Breathtaking" - Ian Shepherdson

The main equity market gauges headed higher in an immediate reaction.

Later in the same conference, and in response to a reporter's questions, she stressed that those same projections were neither promises nor were they in any way meant to construe an officially validated judgement.

To take note of, she also emphasised that the Fed was not trying to in any way "engineer" an 'over-shoot' in inflation.

"Breathtaking. In short, wishful thinking appears to have taken the place of reality-based forecasting," said Pantheon Macroeconomics's chief economist, Ian Shepherdson.

"The lower profile for interest rates, as suggested in the latest projections, is hard to square with the fact that officials kept their inflation projections basically unchanged in the outer years. [...] We think that Fed officials may be placing too much importance on the apparent decline in inflation expectations recently," Capital Economics's US economist Steve Murphy chipped in.

As of 18:10GMT the Dow Jones Industrials was advancing 46.70 points to 17,298.79, alongside gains of 4.46 and 14.79 points for the S&P 500 and Nasdaq Composite which were to be seen at 2,020.35 and 4,744.65, respectively.

Fed members anticipate lower medium-term path for interest rate hikes

The main revisions to Fed board members and regional Fed bank presidents' forecasts for growth and inflation were made to those for 2016, although the median expectation for the path of rate hikes was lowered all the way out to 2018.

Gross domestic product was now seen expanding by between 2.1% to 2.3% in 2016, with the median estimate of 2.2% being two tenths of a percentage point below what they had forecast in December.

In parallel, the median projection for the headline rate of inflation as measured by the deflator for personal consumption expenditures in 2016 was slashed from 1.6% to 1.2%.

Nonetheless, in 2017 PCE inflation was still seen advancing by 1.9%, followed by a 2.0% clip in 2018.

Policymakers’ median projection for the Fed funds rate at the end of 2016 came down from 1.4% to 0.9% and for 2017 from 2.4% to 1.9%.

Economic projections March 2016 FOMC

More news

17 Nov Europe close: Stocks slip going into the weekend

Stocks reversed early gains as investors opted to play it safe going into the weekend and the euro edged a tad higher on the back of the political gyrations on Capitol Hill.

17 Nov Europe open: Stocks start slightly higher, analysts wary

Stocks have started the morning trading slightly higher, tracking overnight gains on Wall Street but analysts are worried about buying into Thursday's bounce.

17 Nov London close: Stocks finish week on down note

London's top flight index slipped on Friday, but managed to finish well-off its lows of the session despite renewed Brexit angst as the pound gave back early gains.

17 Nov Kingfisher gets RBC upgrade as 'reasons to be cheerful' in France

DIY retailer Kingfisher has more "reasons to be cheerful" thanks to an improving French outlook, analysts at RBC Capital Markets said on Friday, while clothes seller Supergroup remains "compelling" but its shares have gained a lot in recent weeks.

17 Nov NAV on the rise as Alpha Real Estate Trust turns focus to build-to-rent market

Real estate investment group Alpha Real Trust saw its net asset value (NAV) rise in its first half of trading as it moved to make further investments in build-to-rent projects.

17 Nov Pacific Industrial & Logistics completes sale of Bedford asset

Industrial and logistics-focussed real estate investment trust Pacific Industrial & Logistics has completed the sale of an asset located at Hammond Road, Bedford, for a total consideration of £5.8m, it announced on Friday.

17 Nov DP Poland cuts ribbon on 50th Polish Domino's store

DP Poland, which holds the exclusive master franchise for the Domino’s Pizza brand in Poland, celebrated the opening of its 50th location in the country on Friday.

17 Nov Mercia Technologies makes new investment into Aston EyeTech

National investment group Mercia Technologies has made a new direct investment into Aston EyeTech - a spinout from Aston University, Birmingham - which has developed a range of proprietary hardware and software products in ocular care, it announced on Friday.

17 Nov SimiGon receives final approval for $2m Israeli Air Force order

Modelling, simulation and training solutions provider SimiGon has now received final regulatory approval for a $2m purchase order received from the Israeli Air Force, initially announced on 20 June 2016, it confirmed on Friday.

17 Nov Agriterra losses grow after 'subdued' interest in corn products

Agricultural investment group Agriterra saw losses widen in the first half of its trading year as subdued demand for its maize flour products slashed revenues by more than a third.