Last week's Federal Reserve policy announcement was a big one. In response to a tightening in the labor market, the Fed set the stage for an interest rate hike possibly as soon as June by removing the "patient" language from its statement. But it also acknowledged recent economic weakening and softness in inflation (caused by falling energy prices and a rising dollar).
The Fed statement itself was largely boilerplate, noting further improvement in the labor market and reasonable confidence that inflation would move back to the Fed's 2 percent target — an expectation that may have been reinforced with Tuesday’s Consumer Price Index release showing another 0.2 percent uptick in February. The bigger story was what happened with the Summary of Economic Projections or "dot plot" estimate of where interest rates will be over time. Fed policymakers dramatically cut the median estimate of where rates will be at the end of the year to 0.6 percent from 1.2 percent previously.
Translation: The Fed is only looking for two rate hikes this year, down from four back in December. This could be too optimistic.
Related: Will Fed Rate Hikes Cost You in Higher Taxes?
The end-2016 interest rate estimate was cut to 1.9 percent from 2.5 percent and the end-2017 was cut to 3.1 percent from 3.7 percent. In addition to cuts to its 2015 GDP growth forecast, headline inflation forecast and the "full" employment rate estimate, this suggests the Fed is suddenly looking a lot less hawkish on monetary policy.
Comments(1)