Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

FOMC leaves interest rates unchanged, one month after historic rate hike

Economic IndicatorsJan 27, 2016 02:07PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
The Federal Reserve held its benchmark Fed Funds Rate at 0.25-0.50% on Wednesday afternoon -- The Federal Reserve, as expected, left short-term interest rates unchanged on Wednesday, reaffirming their plan to tighten monetary policy gradually after approving their first rate hike in nearly a decade last month.

Citing weaker global and domestic growth, as well as high volatility in financial markets, the Federal Open Market Committee (FOMC) voted to hold its benchmark Federal Funds Rate at its current level between 0.25 and 0.50%. On December 16, the FOMC abandoned a seven-year zero interest rate policy, aimed at lifting the U.S. economy out of the Great Recession, by implementing a modest hike of 25 basis points.

Since the historic meeting, many analysts have downgraded their global macroeconomic outlook, as the continual downturn in oil prices and the weakest annual GDP growth in China in a quarter century has stoked fears of a worldwide slowdown. Although the U.S. labor market has grown at a steady pace over the last three months, long-term inflation, the second leg of the Fed's dual mandate, remains far below its objective. Last month, the U.S. Department of Labor reported that its Consumer Price Index (CPI) for all items declined 0.1%, slightly below forecasts for a flat reading. Meanwhile, the Core Personal Consumption Expenditure (PCE) index, hovered at 1.3% in November, sharply under the Fed's targeted goal of 2%. The Core PCE index, which strips out volatile food and energy prices, is the Fed's preferred gauge of inflation.

In one notable change, the FOMC removed a phrase that it is "reasonably confident" inflation will move toward its 2% objective from the statement. The minutes from the December FOMC meeting showed that the Fed does not expect long-term inflation to reach the target until 2018.

Also in December, the Fed projected that the upper range of the Fed Funds Rate will reach 1.4% by the end of 2016, suggesting the possibility of up to four rate hikes this year. On Wednesday, the CME Group's (O:CME) Fed Watch tool placed the implied probability of a 25 basis point hike by the FOMC in March at 26.7%, when the U.S. central bank is scheduled to meet next. Heading into the release, the odds of a March rate hike, according to the CME Group, were fairly higher at 30.3%.

Over the last month, the FOMC has employed two instruments, Overnight Reverse Repurchase Operations or reverse repo's and interest payments on excessive reserves held at the New York Fed, to help stabilize the Fed Funds Rate. Minutes before the statement was issued, the Fed Funds Rate stood at 0.38%, up considerably from an average rate of 0.13% one year ago.

The Dow Jones Industrial Average fell by more than 100 points in the minutes following the release to 16,069, down 98.20 or 0.61% on the session, while the S&P 500 Composite index fell slightly to 1,898.91, down 4.30 or 0.20% on the day. Both indices extended the losses in the final hour of trading, closing the session down 223 and 20 points respectively.

The relatively dovish statement had little impact on the U.S. Dollar Index, which fell by percentage points to 99.06, down 0.05%. EUR/USD inched up to 1.0880, up 0.10%, extending modest gains from earlier in the session.

Yields on the U.S. 10-Year fell mildly to 2.011%. Minutes before the release, bond yields on U.S. 10-year Treasuries stood at 2.043%, up four basis points on the day.

FOMC leaves interest rates unchanged, one month after historic rate hike

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email