WASHINGTON–As many had forecast, the Federal Reserve opted to leave interest rates unchanged, but also gave a strong hint that it could raise rates and tighten monetary policy before the year is out. In a statement, the Fed said U.S. economic activity had picked up and job gains were "solid" in recent months. The vote was 7-3 to keep rates where they are.
"The case for an increase in the federal funds rate has strengthened," the Federal Reserve said following its two-day policy meeting.
It added that its rate-setting committee had decided against raising rates "for the time being," until there was more evidence of progress toward its employment and inflation objectives.
The Fed has held its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent since December, when it raised borrowing costs for the first time in nearly a decade.
Two Fed presidents--Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren—have both said they favor raising rates now.
Meanwhile, the Fed also indicated it will take a less aggressive approach to increasing interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9% from 3.0%.
At the end of 2015 the Fed indicated that four rate increases were likely in 2016, but it has moved just once on rates this year.
In response to the Fed’s decision not to move on rates, CUNA’s chief policy officer, Bill Hampel, said
“Although the Fed did not move this time, an increase in the fed funds target rate would have been consistent with an economy approaching full employment with moderately rising inflation. Therefore, an increase by the end of the year is very likely, to be followed by further increases next year, although a return to ‘normal’ rates will take several years. Higher short-term interest rates will provide welcome relief to savers, and should present no problems for credit unions.”
One day before the Fed’s decision, NAFCU’s chief economist, Curt Long, predicted during the group’s Congressional Caucus that the Fed would not act.
"The case for an increase in the federal funds rate has strengthened," the Federal Reserve said following its two-day policy meeting.
It added that its rate-setting committee had decided against raising rates "for the time being," until there was more evidence of progress toward its employment and inflation objectives.
Two Fed presidents--Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren—have both said they favor raising rates now.
Meanwhile, the Fed also indicated it will take a less aggressive approach to increasing interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9% from 3.0%.
At the end of 2015 the Fed indicated that four rate increases were likely in 2016, but it has moved just once on rates this year.
In response to the Fed’s decision not to move on rates, CUNA’s chief policy officer, Bill Hampel, said
“Although the Fed did not move this time, an increase in the fed funds target rate would have been consistent with an economy approaching full employment with moderately rising inflation. Therefore, an increase by the end of the year is very likely, to be followed by further increases next year, although a return to ‘normal’ rates will take several years. Higher short-term interest rates will provide welcome relief to savers, and should present no problems for credit unions.”
One day before the Fed’s decision, NAFCU’s chief economist, Curt Long, predicted during the group’s Congressional Caucus that the Fed would not act.
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