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Fed keeps rate unchanged as Yellen exits; sets up March hike
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US central bank Chair Janet Yellen
(Bloomberg/File )
F
ederal Reserve officials, meeting for the last time under Chair Janet Yellen, left borrowing costs unchanged while adding emphasis to their plan for more hikes, setting the stage for an increase in March under her successor Jerome Powell.
“The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,” the policy-setting Federal Open Market Committee said in a statement Wednesday in Washington, adding the word “further” twice to previous language.
The changes to the statement, collectively acknowledging stronger growth and more confidence that inflation will rise to their 2 percent target, may spur speculation that the Fed will pick up the pace of interest-rate increases. Officials also said inflation “is expected to move up this year and to stabilize” around the goal, in phrasing that marked an upgrade from their statement in December.
At the same time, the Fed repeated language saying that “near-term risks to the economic outlook appear roughly balanced.”
“It opens the door to four hikes for them, but I don’t think they have walked through it,” said Michael Gapen, chief US economist at Barclays Plc in New York. “It closes the door to two hikes.” Fed officials penciled in three rate moves this year in quarterly forecasts they updated last month, according to their median projection.
With her term ending later this week after President Donald Trump chose to replace her, Yellen is handing the reins to Powell, who has backed her gradual approach and is widely expected to raise interest rates at the FOMC’s next meeting for the sixth time since late 2015. Fed officials are hoping to keep a tight labor market from overheating without raising borrowing costs so fast that it would stifle the economy.
“Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed said, removing previous references to disruptions from hurricanes. “Market-based measures of inflation compensation have increased in recent months but remain low.”
With a gradual pace of rate increases, policy makers want to nudge inflation back up to their 2 percent target, a goal they have mostly missed for more than five years. Even with a brightening outlook for global growth and Fed tightening, financial conditions continue to ease. (bbn)
