There were no surprises at the Federal Open Market Committee meeting Wednesday as the decision was taken to keep interest rates at zero until further notice. The Fed remained unpredictable as to when the first hike in nine years will take place, a move that would break the status quo that has been in place since the U.S. Central bank hit zero rates at the end of 2008.
While the majority of policy makers continuing to call for two interest-rate increases by the end of the year, with one in September and one in November, others believe that one would be enough, possibly followed by another one in 2016.
And although policy makers point to a pickup of the economy after a first-quarter slump, Fed Chair Janet Yellen said she is waiting for more “decisive” evidence of a lasting turnaround before making a move.
Slight Expansion in Economy
FOMC members see economic activity "expanding moderately" but are not convinced of its long lasting status. “There is concern about the fragility of the expansion,” said Jonathan Wright, a professor at Johns Hopkins University in Baltimore and a former economist at the Fed’s Division of Monetary Affairs. “Growth in the first half of the year seems to have been very weak.”
Stocks rose after the Fed announcements, with the Standard & Poor’s 500 Index up 0.2 percent to 2,100.44 in New York. Ten-year Treasury note yields were little changed at 2.31 percent.
Yellin told the Committee, “Although progress clearly has been achieved, room for further improvement remains.” According to her, “Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal funds rate.”
In other words, Yellin is still calling the shots and can decide at the last minute when and if to raise interest rates.