The fourth FOMC meeting of the year ended this afternoon with no surprises. The FOMC policy statement had no policy changes. Even though the statement had no mention about the timing of a rate hike, the Fed’s updated economic projections still suggest that a rate hike before the end of the year remains very likely. Out of 17 FOMC participants, 15 expect the first rate hike to be in 2015. Only 2 think it’ll be in 2016. These are the same numbers as the last update in March. However, the Fed’s dot plot which shows the expected Fed funds rate for the next three years has some changes. More of the Fed members think the rates will rise slower from 2015 to 2017.
After the FOMC statement and the updated economic projections were released, Fed Chair Janet Yellen held a press conference. She continues to stress that a rate hike will depend on improvements in the economy:
My colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained, so the conditions in the labor market will continue to improve and inflation will move back to two percent,
This makes it easy for the Fed to keep postponing the first rate hike. The updated economic projections don’t give me confidence of a late 2015 rate hike. As compared to March, the GDP for 2015 was revised down and the unemployment rate was revised up slightly. This Calculated Risk Blog post has a good summary of the projections.
I still think we’ll see a few inflation hawks on the Fed vote for a rate hike one or two meetings before the majority on the Fed vote for a rate hike. That didn’t happen this time. All FOMC members voted in favor of today’s FOMC policy statement.
Finally, Fed Chair Yellen was asked a couple of interesting questions at the end of her press conference today. First, a reporter asked her about "unintended benefits of higher rates" in regards to savers. Here’s part of Fed Chair Yellen’s answer:
From the point of view of savers, of course this has been a very difficult period; meaning retirees. I hear from some almost every day are really suffering from low rates that they had anticipated would bolster their retirement income. This obviously has been one of the adverse consequences of a period of low rates.
Right after this, another reporter then asked the following question:
What kind of assurances can you give them and people out there who think the Fed is never going to raise rates?
Here’s part of Fed Chair Yellen’s reply:
I can’t give an ironclad promise, but I think it’s clear from our summary of economic projections that we anticipate that the economy will grow, that the labor market will improve, that inflation will move back up to 2% …. and if economic conditions unfold in a way that most of my colleagues and I anticipate, we see it as appropriate to raise rates, and as you can see the largest number of participants anticipate that those conditions should be in place later this year.
Based on this I still think it’s likely we’ll see a Fed rate hike before the end of this year. Of course, based on how the economy has changed and how the Fed has kept delaying movements toward a rate hike, it’s easy to see the Fed postponing yet again the first rate hike to next year.
Future FOMC Meetings
The next two FOMC meetings are scheduled for July 28-29 and September 16-17. The September meeting will include the summary of economic projections and a press conference by Fed Chair Yellen.