FOMC Holds Fed Funds Rate at 2.25 to 2.50 percent

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • FOMC leaves target Fed Fund rate unchanged at 2.25-2,50 percent

Trend:

  • The target Fed Funds rate was set at the current level last December;
  • The rate was set at 1.50 – toe 1.75 percent in March 2018.
  • After holding rates at near zero from December 2008 through December 15, the FOMC has raised the target rate nine times.

Source: Federal Open Market Committee

Image result for federal open market committee

The Federal Open Market Committee made no change in interest rates Wednesday at the conclusion of its two-day meeting. The target for the rate banks charge each other for overnight borrowing remained at 2.25 – 2.5 percent.

All 10 members of the FOMC voted to maintain the benchmark rate at the level it was set last December.

The FOMC action means no change in the prime interest rate which is sued as the basis for home equity lines of credit and auto loans.

At the same time, a majority of officials signaled they might not raise the rate at all this year.

The central bank also said in May it would slow the pace of runoff of its $4 trillion asset portfolio and end the runoff of its Treasury holdings at the end of September, exactly two years after it began unwinding its crisis-era stimulus programs.

In rate projections released after the meeting, 11 of 17 officials said they didn’t think the Fed would need to raise rates at all this year, compared with just two in December. The remaining six officials projected between one and two increases would be needed.

“Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong, but that growth of economic activity has slowed from its solid rate in the fourth quarter,” the Committee said in its post-meeting statement announcing the decision.

The FOMC often acts to increase rates when it believes the economy may be overheating. Thus, the decision to freeze the fed funds rate could be seen as a lack of confidence the economy can maintain its current growth pace.

Indeed, the Bureau of Economic Analysis reported the nation’s Gross Domestic Product grew at an annualized rate of 2.6 percent in the fourth quarter, down from 3.4 percent in the third and 4.2 percent in the second.

The weaker fourth quarter growth was doe largely to a drop in capital investment activity and a slightly higher trade deficit.

In reaching its decision, the Committee all but dismissed February’s weak employment situation report which showed the economy added 20,000 new payroll jobs, down sharply from the 245,000 new jobs in each of the three previous months.

“Payroll employment was little changed in February,” the FOMC said, “but job gains have been solid, on average, in recent months, and the unemployment rate has remained low.”

The Committee though acknowledged the possibility of a slowdown noting, “recent indicators point to slower growth of household spending and business fixed investment in the first quarter.”

You can hear Mark Lieberman every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

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