The Federal Reserve Board decided to maintain the level of the federal funds rate, which is the basis for interest rates, on Wednesday, but it indicated that an increase could happen soon.
Jeff Cox of CNBC.com had the news:
After the latest move by the central bank to pass on a hike, Yellen was left to defend the Fed‘s decision to maintain a crisis-era rate policy despite the last recession ending more than seven years ago.
“Our decision does not reflect a lack of confidence in the economy,” she said during her quarterly news conference after the Federal Open Market Committee meeting. “Conditions in the labor market have strengthened and we expect that to continue, and while inflation remains low we expect it to rise to our 2 percent objective over time.”
FOMC officials dissented over whether to raise rates this month, with three members voting against the final committee statement to keep the funds rate between 0.25 and 0.50 percent.
Yellen said the majority’s thinking was that economic progress is continuing but there was not a strong enough case to hike.
Jim Puzzanghera of the Los Angeles Times noted Yellen downplayed the divided vote among the Federal Open Market Committee members:
The 7-3 vote to keep the benchmark federal funds rate steady at between 0.25% and 0.5% showed growing divisions within the Federal Open Market Committee about whether the economy is strong enough to handle a small increase.
The three dissenters, who wanted to inch the rate up by a quarter percentage, were the most for a Fed monetary policy decision since December 2014.
And the tally signaled that Yellen, who voted with the majority, could have trouble holding back a rate hike for much longer.
But the official statement after the Fed’s two-day rate-setting meeting indicated a small boost is coming later this year.
“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the statement said.
Binyamin Applebaum of the New York Times reported that the Fed believes the economy is improving:
The Fed decided to wait despite an upturn in economic conditions after a weak start to the year.
“Growth of economic activity has picked up from the modest pace seen in the first half of the year,” its statement said. It noted consumer spending remained relatively strong, while business investment remained relatively weak, a pattern that continues to defy easy explanation.
The Fed also said it now saw the chances of faster growth as “roughly balanced” against the risks of economic disruption, an improvement over its bleaker outlook in recent years.
“Our decision does not reflect a lack of confidence in the economy,” Ms. Yellen said.
(Ms. Yellen, however, indicated the Fed did not include the presidential election in this assessment. Asked, for example, about the economic consequences of Mr. Trump’s proposal to impose higher tariffs on imports, she declined to answer, calling that a “political issue.”)
