Federal Reserve officials held off from raising borrowing costs and scaled back forecasts for how high interest rates will rise this year, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy.
The Federal Open Market Committee kept the target range for the benchmark federal funds rate at 0.25 percent to 0.5 percent, the central bank said in a statement Wednesday following a two-day meeting in Washington. The median of policy makers’ updated quarterly projections saw the rate at 0.875 percent at the end of 2016, implying two quarter-point increases this year, down from four forecast in December.
“The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen,” the FOMC said. “However, global economic and financial developments continue to pose risks.”
Kansas City Fed President Esther George dissented from the decision, preferring a quarter-point rate increase.
Weaker-than-forecast global growth has clouded the U.S. outlook and led investors to expect a slower pace of tightening since the Fed raised rates in December for the first time in almost a decade. Yellen said in February that market turbulence had “significantly” tightened financial conditions by pushing down stock prices, causing the dollar to strengthen and boosting some borrowing costs.
“Economic activity has been expanding at a moderate pace,” with household spending gaining amid “soft” company investment and net exports, the Fed said. While inflation has “picked up in recent months,” market-based measures of inflation compensation are still low, the central bank said.
The median of Fed officials’ projections, known as the “dot plot,” saw the federal funds rate at 1.875 percent at the end of 2017, compared with 2.375 percent forecast in December. The end-2018 level fell to 3 percent, from 3.25 percent, with the longer-run projection at 3.25 percent, down from 3.5 percent.
Policy makers maintained their projections on how soon inflation will return to the Fed’s 2 percent target, while cutting their inflation forecast to 1.2 percent this year from
1.6 percent. Officials still see the preferred price gauge rising 1.9 percent in 2017 and 2 percent in 2018.
Officials maintained their forecast for a 4.7 percent U.S. unemployment rate in the fourth quarter of this year. The median projection for 2017 fell to 4.6 percent from 4.7 percent, and in 2018 to 4.5 percent from 4.7 percent. The rate stood at 4.9 percent in February.
“A range of recent indicators, including strong job gains, points to additional strengthening of the labor market,” the FOMC said.
The Fed reiterated that the “stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
Economists in a Bloomberg survey conducted earlier this month put the probability of an April rate increase at 15 percent and chances of a June move at 42 percent. That compares to market-implied projections of 25 percent for April and 54 percent for June, according to pricing in fed funds futures as of Tuesday.