The Federal Reserve ended its June rate policy setting meeting with a unanimous vote against raising its short-term rate, a non-move that was expected despite intensive focus at the start of the year that June might be the likely time for the central bank’s first rate hike in nine years.
“We have seen some progress” in the economic recovery, Federal Reserve Board Chairwoman Janet Yellen said at a press conference on Wednesday. “Even so, the committee judged that economic conditions do not yet warrant an increase in the federal funds rate.”
Liftoff for the Fed’s near-zero rate was likely doomed late last month when the government reported that first-quarter GDP actually contracted at an annual rate of 0.7%, shrinking for the third time since the start of what has been a tepid economic recovery dating from 2009.
Prior to that that report, which the Commerce Department blamed on the depressive effects of a brutal winter, multiple hints by officials including Yellen led many on Wall Street to expect this year, and June’s meeting particularly, as the start of a process of rate normalization.
Investment firm PIMCO was typical of the consensus. Its 12-month outlook issued in mid-March, authored by the firm’s managing directors Andrew Balls and Richard Clarida, forecast June as a likely start to a monetary tightening trend that would occur gradually.
“We expect the Fed to start tightening policy in June, September or December, and to proceed at a fairly slow pace, with a hike every other meeting, at least at the outset,” the firm’s execs wrote.
In a statement issued at the conclusion of their two-day meeting on Wednesday, Federal Open Market Committee (FOMC) members reiterated their desire to raise rates, but said nevertheless determined that economic conditions make the current zero to 0.25% target range for the federal funds rate “appropriate.”
The FOMC was upbeat on employment, saying “job gains picked up while the unemployment rate remained steady.”
But the policy-setting committee said “inflation continued to run below the Committee’s longer-run objective,” blaming declines in energy prices and imports, though offering the upbeat assessment that “energy prices appear to have stabilized.”