Fed keeps benchmark rate near zero

September 18 01:11 2015

Citing global economic weakness and financial market turmoil, the Federal Reserve agreed Thursday to keep its benchmark interest rate near zero despite the rapidly improving U.S. labor market. But Fed policymakers’ forecast indicates they still expect to bump up the federal funds rate this year for the first time in nearly a decade, with meetings scheduled for October and December. Their projections, however, show they expect to raise it even more gradually over the long-term than they previously signaled.Janet Yellen

Richmond Fed chief Jeffrey Lacker was the lone dissenter. The decision capped the most dramatic run-up to a Fed meeting in recent memory, with economists split on whether the central bank would raise its key rate, which has been near zero since the 2008 financial crisis and affects borrowing costs for consumers and businesses across the economy. She said Fed policymakers also want to see if further improvement in the labor market “will bolster our confidence that inflation will move back” to the Fed’s annual 2% target over the medium term..

In a statement after a two-day meeting, the Fed said, “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near-term.”

Fed policymakers now expect just one rate hike this year that would push the funds rate to 0.375% from the current 0.125%, according to their median forecast. They also expect a slower rise, with the benchmark rate increasing to 1.375% by the end of 2016 and 2.625% by the end of 2017, down from its previous estimates of 1.65% and 2.875%, respectively. The Fed also now expects its longer run normal rate to be 3.5%, below its previous 3.75% forecast.