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FOMC: When interest rates rise again, it will be gradual

Reaffirms moving federal funds rate of 0.25% to 0.50%

In the first Federal Open Market Committee meeting since the Federal Reserve decided to raise interest rates, the committee decided to keep the federal funds rate at a range of 0.25% to 0.50%, which doesn’t come as a giant surprise.

In a note before the minutes came out on Wednesday, Chief Economist at Stifel Fixed Income Lindsey Piegza, said that they didn’t expect a change in rates at the January meeting, so soon after liftoff.

“As expected, the FOMC decided there would be no change in the federal funds target rate," said National Association of Federal Credit Unions Chief Economist Curt Long.

"The committee identified low inflation in the near term, resulting in part from the recent drop in oil prices, as well as weakness abroad and in financial markets as the primary risks to its outlook. While conditions could certainly improve prior to the committee’s next meeting in March, if these issues persist, it will be difficult for the committee to pull the trigger on a rate hike at that time,” he continued.

The FOMC announced in its December meeting that it officially raised the federal funds rate for the first time since June 2006.

“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the committee decided to raise the target range for the federal funds rate to 0.25% to 0.50%. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2% inflation,” the FOMC said in a statement for the December meeting.

As for when the Fed will raise rates again, the committee said in its January statement, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2% inflation.”

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,” the statement said. 

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