Fed dovish in latest statement, maintains current target

January 28, 2016

WASHINGTON (1/28/16)--Predictions that the Federal Reserve would raise interest rates four times in 2016 were all but dashed Wednesday when the Federal Open Market Committee (FOMC) released its lukewarm policy statement.

The “dovish” statement at the conclusion of its two-day meeting said that the FOMC expects tepid inflation to remain as such in the near term, and that dating back to the end of 2015, the economy has “slowed.”

The Fed raised interest rates at its last meeting to a range of 0.25% to 0.5% for the first time since before the 2008 financial crisis. Since then, the stock market has remained consistently volatile, and international markets only seem to have fueled the turbulence.

Furthermore, the Fed removed language seen in previous statements that said the risks to the economy were evenly balanced, which could signal that the central bank has softened its belief in the strength of the economy.

Still, CUNA economists say that there’s cause for optimism.

“Although the economy may have slowed somewhat in the fourth quarter, it is not limping or merely moving sideways,” said Perc Pineda, CUNA senior economist. “Although we have lowered our forecast for 2016 GDP from our previous forecast, our sense is that GDP growth next year will be above that of 2015.”

“Again, there will always be market volatility and external shocks to the U.S. economy, which the Fed consistently monitors,” Pineda added. “But what happened earlier this month is not going to dramatically alter the path of U.S. economic expansion.”