Fed Keeps Rates Where They Are For Now

During its December meeting, the Federal Open Market Committee (FOMC) voted to maintain the federal funds rate at the current range of 0.50% to 0.75%.

Still, the committee members noted in their usual statement that the U.S. economy continued to expand at a moderate pace during the fourth quarter; the labor market continued to improve, and the unemployment rate stayed near its recent low. What’s more, inflation – which is perhaps the most important macroeconomic indicator on which the Fed bases its decision whether to raise rates – increased slightly during the past two quarters but remained below the committee’s 2.0% longer-run objective.

The committee says it will continue to monitor key macroeconomic indicators as it considers whether to raise rates again in the months to come. Most economists are forecasting that the Fed will raise rates at least two more times this year, possibly three – but the timing of those rate increases is about anyone’s guess, at this point. The Fed gave basically no indication in today’s statement as to when they might come, which is frustrating for some economists and analysts.

“Those hoping for even a smidgen of additional guidance as to the timing of the next rate hike were sorely disappointed by today’s FOMC statement,” says Lindsey Piegza, chief economist at Stifel Fixed Income, in a prepared response. “Minimal changes to the language relative to the December statement, today’s release simply underscored the continued ‘moderate’ pace of the economy coupled with committee members’ recognition of sizable uncertainty stemming from a new administration in Washington.

“Acknowledging the improvement in sentiment, policy makers were equally willing to point out the still-sluggish level of corporate investment, a disconnect that reinforces the notion that the Fed will not base monetary policy on political promises alone but wait until the impact of said policy has trickled down into the economy with a presumably positive effect,” Piegza adds. “After all, as noted in the December FOMC meeting minutes, depending on the mix of tax, spending, regulatory, and other possible policy changes, economic growth could turn out to be faster or slower than currently anticipated. For now, with a number of question marks from a fiscal standpoint, and still a lack of clear direction in the underlying economy, most committee members appear well suited to err on the side of caution, waiting on the sideline for additional information on how the U.S. economy is evolving in the New Year.”

The FOMC last raised the fed funds rate in December to the current range of 0.50% to 0.75%. It was the first rate hike since December 2015, when the committee voted to raise the fed funds rate by 0.25%. What’s more, it was only the second increase since 2006.


Please enter your comment!
Please enter your name here