US Federal reserve tempers its interest rate outlook - Lowes Financial Management
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US Federal reserve tempers its interest rate outlook

17/03/2016 … Author:

The US Federal Reserve yesterday kept its target range for the federal funds rate at 0.25% to 0.50%. This was in line with market expectations. Of greater interest however was the revision to future interest rate expectations. The median consensus at their December meeting suggested four rate hikes this year. The latest forecast however sees this key interest rate at 0.875% by the end of this year, which implies only two interest rate hikes this year. This was reflected in projections further into the future, with the federal funds rate projected to be at 1.875% at the end of 2017, down from 2.375% predicted in December.

Although the central bank still expects economic activity to expand at a moderate pace they believe that “global economic and financial developments continue to pose risks”. Janet Yellen, chair of the Federal Reserve only just last month expressed that market volatility had tightened financial conditions by pushing down equity prices, caused the US dollar to strengthen and increased some borrowing costs. Such conditions led to the Federal Reserve refraining from tightening conditions further by raising interest rates.

Whilst data regarding the US economy remains relatively robust, with unemployment still expected to fall from the current level of 4.9% to 4.7% and there being a modest uptick in inflation data, the Federal Reserve is clearly cognisant of the easing which continues elsewhere around the world. Last week we saw the ECB increase their quantitative easing program and Norway just today have cut their key interest rate by 0.25%. For now, the attention of the central bank appears to be focused not only on their own economy but also that of the world.

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