Fed slows down on plans for rate increases
Bank leader says caution needed, but policymakers remain optimistic about prospects for U.S. economy
The Federal Reserve again has pared its plans for raising interest rates, citing the weakness of the global economy as a reason for greater caution about the prospects for domestic growth.
WASHINGTON — The Federal Reserve has again pared its plans for raising interest rates, citing the weakness of the global economy as a reason for greater caution about the prospects for domestic growth.
The Fed’s policymaking committee voted not to raise its benchmark rate at a meeting that ended Wednesday, though an increase this month was widely expected at the beginning of the year. And it pulled back sharply from a December prediction that the rate would rise by 1 percentage point this year. Fed officials now expect to raise rates by just half a percentagepoint this year.
Janet Yellen, the Fed’s chair, said the central bank remained relatively optimistic about the domestic economy, which she said has shown no signs of damage from the wobbles of financial markets or the weakness of global growth. But she said that prudence dictated caution.
“What you see here is a virtually unchanged path
of economic projections and a slightly more accommodative path” for monetary policy, Yellen said at a news conference.
There was one dissent Wednesday. Esther George, president of the Federal Reserve Bank of Kansas City, voted to raise rates by a quarter-point. A statement did not explain her reasons.
Officials also predicted that the pace of increases would be somewhat slower in coming years. Their median estimate is that the Fed’s benchmark rate will hit 3 percent by the end of 2018.
The plans for a slower climb are not a result of a comparable change in the Fed’s economic outlook. Officials still expect the economy to expand at an annual rate of about 2 percent.
Rather, the forecasts suggest the Fed sees room to let the economy recoup lost ground. Officials now predict that the unemployment rate will fall to 4.5 percent by the end of 2018, before rebounding to a stable level at 4.8 percent. In December, they predicted it would bottom out at 4.7 percent.
The Fed entered the year planning to raise its benchmark rate about 1 percentage point, most likely in four quarter-point increments. Officials backed away from those plans after financial conditions tightened in January at a time of concerns about the global economy.
But the move toward higher rates has been only delayed, not derailed. The Fed said after its last meeting, in January, that it was waiting to gauge the effect of financialmarket turmoil on the broader economy. The danger has waned. The stock market has largely recouped its losses. Indexes on Wall Street rose modestly after the Fed’s action Wednesday.
Job growth has remained strong, driving the unemployment rate below 5 percent. And some Fed officials see signs that inflation is gaining strength.
Prices rose 1.7 percent in the 12 months through January, according to the latest reading from the Fed’s preferred gauge, bringing the central bank closer to its goal of 2 percent annual inflation for the first time in several years.
However, another government report said U.S. consumer prices fell 0.2 percent in February, dragged by another drop in energy prices. Yet, core inflation managed to tick up by 0.3 percent, the Labor Department reported.