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Politics & MoneyMortgage

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Says federal funds rate to remain low “for some time”

The Federal Reserve announced that while economic activity has continued to strengthen along with the labor market, it will not raise rates following its May meeting.

During its March meeting, the Federal Open Markets Committee raised rates for the first time in 2018, increasing the federal funds rate by 25 basis points.

But after this month’s meeting, the FOMC announced it would keep rates the same, maintaining the target range at 1.5% to 1.75%.

“Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate,” the committee said in a statement. “Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low.”

The committee explained that inflation has moved close to 2%, and their long-term expectations for it has changed little.

“The committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal,” the FOMC said in its statement.

It also explained that while it expects to continue to gradually increase interest rates, it expects it to remain at historically low levels “for some time.”

“The committee expects that economic conditions will evolve in a manner that will warrant further 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,” the committee stated. “However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data”

The market was not surprised by today’s decision, and only predicted a 6% chance of a rate hike in May. However, they are also placing a 94% chance of a 25 basis point increase at the upcoming June meeting.

In the note authored by Goldman Sachs Chief Economist of Investment Bank Jan Hatzius, he explained the company forecasts the FOMC will continue to raise interest rates once each quarter until 2019.

Goldman forecasted the federal funds rate will rise to a terminal funds rate of 3.25% to 3.5%.

However, this forecast is on the bullish side, and most experts, including members of the FOMC, believe there will be two to three rate hikes each year.

“The Fed was never likely signal a major shift in policy at the conclusion of the FOMC meeting today, with the fed funds target range left unchanged at 1.5% to 1.75% and the accompanying statement little different from the one issued in March,” Capital Economics Economist Andrew Hunter said. “Regardless, officials remain on course to raise rates again in June and we expect two further 25bp rate hikes in the second half of this year.”

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