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Federal Reserve leaves benchmark interest rates unchanged, cuts forecast

Published 03/16/2016, 01:54 PM
Updated 03/16/2016, 02:05 PM
The Federal Reserve cut its forecast for 2016 interest rate hikes from four to two on Wednesday

The Federal Reserve cut its forecast for 2016 interest rate hikes from four to two on Wednesday

Investing.com -- As expected, the Federal Reserve left short-term interest rates unchanged on Wednesday, holding rates steady for the second consecutive meeting since its historic decision to abandon a seven-year zero interest rate policy in December.

Citing increased risks with global economic and financial developments, the Federal Open Market Committee (FOMC) kept its benchmark Federal Funds Rate at a target range between 0.25% and 0.50%.The FOMC voted 9-1 to leave short-term interest rates at their current range, with Federal Reserve Kansas City president Esther George serving as the lone dissenter. George preferred to raise the range by 25 basis points.

Nevertheless, the Fed slashed its forecasts for future interest rate hikes from four to two for the remainder of 2016. In addition, the FOMC cut 50 basis points from its forecasts for next year.

Since the FOMC last met in January, the U.S. central bank said the economy has expanded at a moderate pace while it has noticed additional strength in the labor market. While the Fed noted that inflation has picked up in recent months, the FOMC emphasized that it still remains below its long-term 2% objective. On Wednesday morning, the Labor Department reported that its headline the CPI increased 1.0% on an annual basis, while its Core CPI jumped by 2.3% over the prior 12 months.

Over the next several months the FOMC is expected to employ a data-driven approach to the timing of its next rate hike. In December, Yellen vowed that the Fed would not be mechanical in its approach to tightening monetary policy. The FOMC is scheduled to meet next in late-April, before it releases its next economic projections in June.

Following the release, the Dow Jones Industrial Average rose approximately 75 points to 17,308.03, up 56.50 on the session. Yields on the U.S. 10-Year fell slightly to 1.92%, down seven basis from their percentage before the Fed's announcement.

The U.S. Dollar Index fell sharply after the Fed issued its statement, dropping to a fresh 1-month low at 95.80.

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