Fed's Interest Rate Increases to Proceed at Snail's Pace

Fed Chair Janet Yellen

WASHINGTON, DC—The Federal Reserve Bank kept interest rates unchanged on Wednesday leaving the target range for its overnight lending rate at 0.25% to 0.50%. But the real zinger in its announcement on Wednesday was the decision to slow the promised pace of interest rate hikes to two this year, from the four it said it would do in December 2015, with the target range up by a projected half a percentage point by year’s end. Indeed, December — when the Fed described the risks to economic activity and the labor market as “balanced” — seems almost a century past. To be sure, this month’s FOMC statement is less dour than the one it issued in January, when it warned that it was “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.” This month, FOMC’s description of the economy was more optimistic. Since January, it said, “economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further.” Also, it said, a range of recent indicators, including strong job gains, points to additional strengthening of the labor market. The bad news: business fixed investment and net exports have been soft. Inflation picked up in recent months but continues to run below the Fed’s 2% longer-run objective. The Fed made no secret of what is staying its hand: the uncertain global economy and financial developments continue to pose risks. But reading though the Fed’s latest Summary of Economic Projections, it doesn’t appear that FOMC has the greatest of confidence in the US economy’s resiliency. It downgraded the median forecast for GDP this year to 2.2% from 2.4% in December. The median forecast for 2017 was trimmed to 2.1%. A Dovish Approach Does all this sound “dovish” to you? If so, you are not alone. Analysts took to Twitter following the announcement with a common theme to their Tweets.

Dovish tilt to March #FOMC statement. Will #Fed let US economy run a little hot? https://t.co/tVGt0MNUw7 pic.twitter.com/mrTUfpegwS

— PIMCO (@PIMCO) March 16, 2016

and ….

#Fed surprisingly dovish now. My #FOMC review: https://t.co/35mtBFInWa pic.twitter.com/O79yIPaQ3e

— Johnny Bo Jakobsen (@jbjakobsen) March 16, 2016

Some were gleeful in their disgust with the change.

It’s funny too see uber wrong hawkish strategists pre #FOMC, belly dancing after the decision,what a waste of money to pay these people