Settle In For Lower Rates

The Fed should admit it plans to raise interest rates only once it sees stronger economic growth, calm global conditions, and a sustainable upward trend in inflation.

 
 

The Federal Reserve issued its FOMC statement on Wednesday. Yellen followed up the dovish release by confirming a cautious stance, citing the British vote on whether to exit the European Union as a factor in the Fed's decision.

 

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Although the FOMC statement and Yellen upgraded economic activity, they downgraded job growth. Apparently, the Fed is worried the 35,000 gain in May might go from "it was just one month" to it's now been "several months."

Yellen said tightening will stay on the table for any future meeting, but it's clear it will be at the end of table. In responding to questions about the Fed's lower rate forecast — the dot game, as I call it — Yellen said rates could be lower for longer than the Fed anticipated.

Several economists and analysts made a big deal out of the Fed's dot game.

Fed officials significantly lowered forward rate expectations from the April meeting. They lowered the expected funds rate by 60-70 basis points for the end of 2017 and 2018 — to 1.60% and 2.40%.

Read more about analyst reaction to the Fed's interest rate forecast.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

 
 

June 16, 2016


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