Nevada News Reporter

Fed sets stage for rate hike but downgrades outlook

Fed sets stage for rate hike but downgrades outlook

The Federal Reserve on Wednesday set the stage for its first interest rate hike since 2006 signaling its confidence the U.S. economy. Yet the Fed slightly downgraded its economic outlook, saying that growth “has moderated somewhat.” It said it will raise its benchmark short-term rate, now near zero, only when the labor market improves further and inflation prospects pick up from the current meager pace. Fed policymakers “have not decided on the timing of the initial increase” in the rate’s target range, said the Fed’s statement released at 2 p.m. ET following a two-day meeting.AP JACKSON HOLE-ANNUAL CONFERENCE A USA WY

The Dow down before the Fed announcement made a 250 point swing afterward, rising by triple digits after the statement was released The Fed’s policymaking committee dropped a pledge to “be patient” as it considers raising the fed funds rate. Instead, the Fed said it will increase the rate “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.” A rise in the funds rate would ripple across the economy, pushing up rates for everything from mortgages and car loans to corporate bonds and personal savings accounts.

Although job growth has been strong, the Fed is hesitant to raise rates with inflation and wage growth persistently weak but policymakers have said they expect price increases to drift toward the Fed’s goal as oil prices rise. “Inflation has declined further below (the Fed’s) longer-run objective, largely reflecting declines in energy prices,” the Fed statement said.

Fed policymakers lowered their median interest rate forecast for the end of 2015 to 0.625% from 0.875%. That suggests rates may be more likely to rise in September than June, which was the timeframe the officials had indicated late last year. The Fed expects the rate to be just under 2% by the end of 2016. Policymakers also reduced their forecasts for economic growth this year to 2.3% to 2.7% from 2.6% to 3% in their December projection. Harsh winter weather has hampered economic activity in the current quarter. They now expect growth of about 2.5% in 2016, down from 2.7%. With low oil prices and a strong dollar keeping a lid on price increases broadly, Fed policymakers estimate annual inflation will be just 0.6% to 0.8% this year, vs. their previous forecast of 1% to 1.6%. They lowered their forecast for 2016 just slightly to 1.7% to 1.9%.