Coverage: Fed tempers forecast for economy

The Federal Reserve reduced estimates Wednesday of how much it expects to raise short-term interest rates in 2016 and beyond, noting soft global growth and volatile markets.

Howard Schneider and Lindsay Dunsmuir of Reuters had the day’s news:

A moderate economic expansion and “strong job gains” would make it appropriate to hike rates over the year, the U.S. central bank said in a policy statement. Fresh projections showed a majority of its policymakers were comfortable with two quarter-point rate hikes by year’s end, half the number seen in December.

But Fed Chair Janet Yellen later stressed the uncertainty surrounding that outlook, noting that even recent signs of strengthening inflation needed to be proven to be more than a passing trend.

“I am wary and have not yet concluded that we have seen a significant uptick that will be lasting,” Yellen said in a press conference following the conclusion of a two-day policy meeting.

Overall, “you have seen a shift in most participants’ path of policy. That largely reflects a somewhat slower projected path for global growth,” Yellen said. “The U.S. economy has been very resilient in the face of shocks … That is important.”

Binyamin Appelbaum of the New York Times notes that the Fed is only delaying its plans to raise interest rates:

The Fed entered the year planning to raise its benchmark rate about one 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 health of 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 impact of financial market turmoil on the broader economy. The danger has waned. The stock market has largely recouped its losses, and other measures of financial stress have returned to pre-January levels.

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.

Jim Puzzanghera of the Los Angeles Times reported that one Fed bank president wanted to raise interest rates:

Members of the Federal Open Market Committee voted 9-1 at the end of a two-day policymaking meeting to hold the central bank’s benchmark rate at between 0.25% and 0.5%.

Esther George, president of the Federal Reserve Bank of Kansas City, dissented. She wanted to increase the rate by 0.25 percentage point, the Fed said.

Analysts had not expected a rate hike.

The short monetary policy statement issued after the meeting offered no new hints of when the next hike in the federal funds rate would come. The Fed meets eight times a year, with the next gathering in late April.

In December, Fed policymakers nudged up the rate by 0.25 percentage points. The move ended seven years of keeping it near zero in an unprecedented attempt to boost the economy and was seen as a validation of the recovery from the Great Recession.