The Federal Open Market Committee voted to hold the target range for the Federal Funds rate at 0.25% to 0.50%, although three dissenters voiced support for a rate hike today. In a dovish statement, while the Committee judged that “the case for an increase in the federal funds rates [had] strengthened” and that “near-term risks to the economic outlook appear roughly balanced,” the Committee ultimately “decided…to wait for the further evidence of continued progress toward its objectives.”
Before and After the FOMC Statement
“So why didn’t we raise the rate today?” asked Chairwoman Yellen. In short: there appears to be little risk of falling “behind the curve,” she responded. She noted that the today’s “decision does not reflect a lack of confidence in the economy” so much as “labor market slack being taken up at a somewhat slower pace than in previous years” and “inflation continuing to run below [the] 2 percent target.” In perhaps a token nod to the persistence of deflation in Japan, she added that “this cautious approach to paring back monetary policy support is all the more appropriate given that short-term interest rates are still near zero, which means that we can more effectively respond to surprisingly strong inflation pressures in the future by raising rates, then to a weakening market rate and falling inflation by cutting rates.”
Once again, the Committee scaled back expectations for a rate hike, trimming expectations by one full rate hike in 2016 and two rate hikes in 2017 and 2018 (Table 1). Rates (again) will be lower for (even) longer.
Table 1. Economic Projections of Federal Reserve Board Members and Presidents, September 2016