US Federal Reserve keeps rates flat but hints at one more increase by year’s end
US central bank said portfolio drawdown to start in October
The US Federal Reserve left interest rates unchanged on Wednesday but signalled it still expects one more increase by the end of the year despite recent weak inflation readings.
New economic projections released after the Fed’s two-day policy meeting showed 11 of 16 officials see the “appropriate” level for the federal funds rate, the central bank’s benchmark interest rate, to be in a range between 1.25 per cent and 1.50 per cent by the end of 2017.
That is one-quarter of a point above the current level. Financial markets were barely moved by the Fed decision and the new economic projections and based on the immediate market reaction it looked as if the Fed was right when it said that the portfolio run-off would be as exciting as “watching paint dry”.
“The labour market has continued to strengthen, economic activity has been rising moderately so far this year,” the Fed said in its policy statement. It added that the near-term risks to the economic outlook remained “roughly balanced” but that inflation was being watched “closely.”
The interest rate outlook for next year remained largely unchanged, with three hikes envisioned. But the US central bank slowed the pace of projected monetary tightening from there.
It forecasts only two increases in 2019 and one in 2020. It also lowered again its estimated long-term “neutral” interest rate from 3.0 per cent to 2.75 per cent, reflecting concerns about overall economic vitality.
