Fed Likely Punting Rate Hike Till Later as Growth Cools

Hours after the U.S. Commerce Department reported that first quarter growth had slowed to a mere 0.2%, the Federal Reserve on Wednesday reaffirmed its policy to keep short-term rates near zero and continue to reinvest the proceeds of the government and mortgage-backed debt purchased as part of its now-ended quantitative easing program.

In a statement that followed its two-day Federal Open Market Committee (FOMC) meeting, the Fed acknowledged that both the economy and job growth had slowed during the winter due in part to “transitory factors” but it anticipates that “with appropriate policy accommodation” the economy would rebound “at a moderate pace.”

For investors and market watchers looking for signs of when the Fed will raise interest rates for the first time since 2008, the Fed said it expects to raise rates when there’s “further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”  

That means “no rate hike in June,” says Robert Brusca, Chief Economist of Fact and Opinion Economics, a consulting firm. “September is possible if the economy springs back but there may not be a hike this year at all.”

Ward McCarthy, chief financial economist at Jefferies, agrees. “The Fed is in no rush. At the current juncture, the timing of the liftoff is still indeterminate and will depend upon continued improvement in the labor market and the inflation data.”