Fed forecasts only 2 rate hikes this year

March 17, 2016

WASHINGTON (3/17/16)--The Federal Open Market Committee (FOMC) not only held off on raising interest rates Wednesday, but the Federal Reserve’s monetary policy-making body also divulged that it likely only will raise interest rates twice in 2016, a stark departure from recent forecasts.

The Federal Reserve’s dot plot, which charts when each voting member of the board believes the Fed should hike interest rates, puts the federal funds rate at 0.9% at the end of 2016, 1.9% at the end of 2017, and 3.3% at the end of 2018 (MarketWatch March 16).

“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 fed said in its policy statement, released at the end of its two-day meeting Wednesday.

The Fed’s assessment, it continued, would take into account data on labor market conditions and inflation, and readings on financial and international developments.

Perc Pineda, Credit Union National Association senior economist, said that forthcoming economic data might better signal the direction of the U.S. economy, and as byproduct future actions by the Fed.

“This year’s first-quarter GDP, which comes out next month, should provide a clearer view on the economy’s growth momentum,” Pineda said. “Moreover, effects of the rate hike in December, particularly on investment spending given the still-low cost of borrowing, would also be clearer in the GDP numbers next month.

“The labor market is solid, but room for further improvement remains, particularly in terms of adding more high-wage jobs. Headline inflation is catching up to core on an annual basis. However, it is premature to say that the economy is closely approaching full capacity given current employment and inflation numbers.”