The Fed Keeps Rates Unchanged

The Fed Keeps Rates Unchanged

The Federal Reserve brought out its policy statement this Wednesday. The Chairman of the Federal Reserve, Janet Yellen, spoke to members of the press about the latest decisions made by the Fed regarding the economy. She also gave information about future developments forecast for the rest of the year.

There was mostly good news, as the economy is doing well overall. It looks like the US economy is getting stronger and the attitude of the Fed is to let it grow.

Federal Reserve Policy

The US Federal Reserve chose to leave interest rates at the same level. But sent out a strong signal that it could tighten monetary policy. The move would happen by the end of the year, if the labor market continues to improve.

The Chairman of the Federal Reserve, Janet Yellen spoke as part of a prepared statement. She said that US growth looked strong and it is expected for it be even stronger. As such, rate increases would become necessary to make sure the economy doesn’t overheat. There is the possibility that the economy could overheat and that inflation could rise. That is a situation that nobody wants and the Fed is determined to prevent high inflation.

“We judged that the case for an increase has strengthened but decided for the time being to wait,” Yellen said. “The economy has a little more room to run”, she added.

Janet Yellen said that if the job market will continue to improve, she expects one rate increase for this year. That is conditional on no major new risks appearing.

The Fed kept the target rate that it had for overnight lending between different banks. The current range is between 0.25 percent and 0.50 percent. The rate has stayed at this level since the Fed raised it in December. At the time, it was a raise that had not happened in almost a decade.

Different Opinions

There have been different opinions at the central bank regarding the urgency of rate increases. This Wednesday, three Fed presidents dissented from the policy statement. Esther George, who is the Kansas City Fed President, Loretta Mester, who is the Cleveland Fed President and Eric Rosengren, who is the Boston Fed President were the three. They together said that they would have rather raised rates this week.

The median projection that was released together with the statement says that policymakers expect just one rate increase by the end of the year. The number of rate increases expected went down from two to one. Out of the 17 policymakers, three said that rates are going to remain steady until the end of the year.

One of the projections of the Fed was that there will be a less aggressive rise next year and in the year 2018 when it comes to interest rates. The forecast for its longer-run interest rate went down from 3.0 percent to 2.9 percent.

The policy statement didn’t seem to change the minds of investors regarding when the next increase in rates is going to happen. Most of them believe that there is almost no chance for an increase in November. For December, there are half and half odds for an increase announcement.

After the Federal Reserve released the policy statement US stock prices went up.

 

Image source: Wikipedia

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