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Fed Dials Back Pace of Rate Hikes

MAR 17, 2016

Officials flag concerns over lingering risks to economic outlook

 

Federal Reserve officials dimmed their view of the economy and said they likely won’t raise interest rates as swiftly as they had previously anticipated, a nod to lingering risks posed by soft global growth and financial-market volatility.

Policy makers left short-term interest rates steady and said they expect to raise their benchmark rate just twice this year, after an initial increase in December, down from the four they previously predicted. That moves the Fed more into line with the thinking of investors, many of whom doubted the central bank would be able to move as fast as it had forecast.

Wednesday’s slightly more pessimistic view of the economy and diminished rate outlook reflect the difficulties facing the Fed as economies elsewhere slow and the U.S. itself struggles to gain traction. While inflation is showing signs of stirring, some in the Fed worry that raising rates too soon may choke off the recovery.

“Caution is appropriate,” Fed Chairwoman Janet Yellen said at a press conference after the rate decision was announced, summing up her approach in handling a vulnerable economy, weak global growth and a central bank with few tools to respond if new threats derail the expansion.

The Fed said in a statement after its two-day policy meeting that it was holding its benchmark rate between 0.25% and 0.50%. Policy makers expect the rate to creep up to 0.875% by year-end, according to the median projection of 17 officials released after the meeting.

 

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