Fed reveals potential future rate direction

by Justin da Rosa28 Jan 2016
The Federal Reserve kept U.S. interest rates unchanged Wednesday, but hinted at potential future policy.

The central bank hinted at future rate changes in its economic policy announcement.

“In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation,” the Fed said following a two-day meeting in Washington. “This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

The Fed said it would monitor the progress toward its inflation goal and that it expects economic conditions will improve to the point of warranting gradual rate increases.

"The statement reads as balanced," said Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, according to Bloomberg. "They’ve left the door open for March while acknowledging some strain in domestic data and international developments along with the decline in inflation expectations."

However, the Fed did say it could hold the rate at its current level of 0.25-.05% past the next meeting date.

“The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the central bank said. “However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

The Fed last hiked the rate by 0.25% in December.


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