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Fed decides not moving is best

Ending its two-day policy meeting, The US Fed has refrained from hiking interest rates. It indicated that there were too many imponderables right now, prompting it to postpone a rate increase for the time being.

Ending its two-day policy meeting, The US Fed has refrained from hiking interest rates. It indicated that there were too many imponderables right now, prompting it to postpone a rate increase for the time being.
Officials of the Federal Open Market Committee were seen reversing course on earlier plans for a mid-year increase in the central bank’s key short-term interest rate, now pegged at 0.25-0.50 percent.

Ending its policy meeting on Wednesday, the Federal Reserve decided to wait and see what happens when Britain votes in a referendum on EU membership on June 23.

The Fed also appeared influenced by a strikingly bad May report on US employment, with the number of jobs created the lowest in nearly six years. And Fed chief Janet Yellen had made it clear she remained frustrated with inflation being still weak in the world’s largest economy.

Reading between the lines

As an added irritation, the Fed earlier on Wednesday reported a 0.4-percent drop in US industrial output in May month-on-month, with production down 1.4 percent year-on-year.

Many economists now expect the Federal Reserve will not move before September unless there’s a significant job-growth rebound. The Fed itself indicated there may be two hikes later this year.

At the same time, it predicted a path of about three rate increases per year, starting in 2017.

Also on Wednesday, the central bank cut its growth outlook for 2016 and 2017, seeing the US economy expanding by 2 percent and thus no longer above the long-term trend.

hg/jd (AP, Reuters)

Topics: Federal Reserve

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