 "Federal Reserve, Janet Yellen")
The Federal Reserve took its finger off the pause button on Wednesday, signalling that it plans to resume increasing its benchmark interest rate in the coming months.
The Fed, in a statement after a two-day meeting of its policy-making committee, said the domestic economy seemed little harmed by the recent turmoil in financial markets.
"Economic activity has been expanding at a moderate pace despite the global economic and financial developments in recent months," the Federal Open Market Committee of the central bank said.
But the storm has forced the Fed to delay its march toward higher rates. It did not raise rates at the meeting that ended on Wednesday, though an increase this month had been widely expected at the beginning of the year. And it pulled back sharply from its December prediction that it would lift rates by one percentage point this year.
Most Fed officials now expect to raise the benchmark rate by half a percentage point this year, according to an aggregation of their forecasts that the Fed published on Wednesday. Instead of four quarter-point increases this year, the bank is now predicting two.
Janet L Yellen, the Fed chairwoman, is holding a 2:30 p.m. news conference, as she does after alternate meetings of the policy making group. That has not started as this paper went to print.
There was one dissent on Wednesday. Esther L George, president of the Federal Reserve Bank of Kansas City, voted to raise rates by a quarter-point. The statement did not explain her reasons.
Officials also predicted that the pace of increases would be somewhat slower in coming years. Their median estimate is that the Fed's benchmark rate will hit 3 per cent by the end of 2018.
The plans for a slower climb are not a result of a comparable change in the Fed's economic outlook. Officials still expect the economy to expand at an annual rate of about 2 per cent, and they still expect inflation to rise gradually, remaining below a 2 per cent annual pace until 2018.
Rather, the forecasts suggest the Fed sees room to let the economy recoup lost ground. Officials now predict that the unemployment rate will fall to 4.5 per cent by the end of 2018, before rebounding to a stable level at 4.8 per cent. In December, they predicted that it would bottom out at 4.7 per cent.
The Fed entered the year planning to raise its benchmark rate about one percentage point, most likely in four quarter-point increments. Officials backed away from those plans after financial conditions tightened in January at a time of concerns about the health of the global economy. But the move toward higher rates has been only delayed, not derailed.
The Fed said after its last meeting, in January, that it was waiting to gauge the impact of financial market turmoil on the broader economy. The danger has waned. The stock market has largely recouped its losses, and other measures of financial stress have returned to pre-January levels.
Job growth has remained strong, driving the unemployment rate below 5 per cent. And some Fed officials see signs that inflation is gaining strength.
Prices rose 1.7 per cent in the 12 months through January, according to the latest reading from the Fed's preferred gauge, bringing the central bank closer to its goal of 2 per cent annual inflation for the first time in several years.
"We may well at present be seeing the first stirrings of an increase in the inflation rate," Stanley Fischer, the Fed's vice-chairman, said in a speech last week.
The Fed's next meetings are scheduled for April and June.
©2016 The New york Times News Service
