Federal Reserve Leaves Rates Unchanged
Posted January 31, 2018 3:04 p.m. EST
WASHINGTON — The Federal Reserve left its benchmark interest rate unchanged, as was widely expected, at its final meeting under its outgoing chairwoman, Janet Yellen.
— The benchmark rate remains in a range between 1.25 percent and 1.5 percent, the Fed said Wednesday in a statement released after a two-day meeting of its policy committee.
— The Fed said the economy continues to grow at “a solid rate” and the job market continues to gain strength. The upbeat economic outlook is likely to solidify investor expectations that the Fed will raise its benchmark rate at its next meeting, in late March.
— In the ninth year of a prolonged economic expansion, the Fed is still trying to stimulate faster growth, in part because it remains concerned about slow inflation.
— The Fed also announced that Jerome Powell, a member of the Fed’s board since 2012, will take the oath of office as the new chairman Monday morning.
The Big Picture
The economy grew 2.3 percent in 2017, extending a prolonged period of unusually stable growth. And economic forecasters expect somewhat faster growth this year, partly as a result of the $1.5 trillion in tax cuts that went into effect at the beginning of the year.
The unemployment rate stood at 4.1 percent in December, and Fed officials don’t expect it to fall much further. Instead, as growth continues, they expect inflation to begin increasing more quickly.
The Fed raised its benchmark rate three times last year, and officials plan to keep raising rates this year, although there isn’t a consensus as to how many increases the markets should expect. The Fed last raised rates at its final meeting of 2017, in December.
But Fed officials are still committed to moving slowly. Growth, while steady, remains weak by historical standards, and while unemployment is quite low, wage growth remains sluggish, too.
Changing of the Guard
Yellen will step down Saturday at the end of her four-year term as Fed chairwoman.
Under her leadership, the Fed has reduced unemployment, though inflation has remained sluggish. The Fed has also continued the process of imposing stronger regulations on the financial industry.
Yellen is the first chair to complete a term without being appointed to a second one.
Powell, chosen by President Donald Trump as her successor, has emphasized that he supports the Fed’s current monetary policy of slowly unwinding its post-crisis economic stimulus campaign.
Part of the membership of the Fed’s policymaking committee also turns over each year. The policy committee comprises the Fed’s governors and the presidents of its 12 regional banks, but only five of those bank presidents hold votes in any given year. The presidents who will hold votes in 2018 are regarded as somewhat more concerned about inflation than those who held votes last year. That could influence decisions about the pace of rate increases.
On the Horizon
Investors expect the Fed to raise its benchmark rate at its next meeting in March. While the Fed’s post-meeting statement Wednesday did not address the issue directly, the optimistic economic assessment could fortify those expectations.
Most Fed officials predicted in December that the Fed would raise rates at least three times in 2018. Some analysts already are raising the odds of a fourth increase, citing a strengthening economic outlook.
There are countervailing pressures. Inflation remains low despite the Fed’s repeated predictions that faster inflation is around the corner. The value of financial assets, on the other hand, continues to soar as investors have shaken off the rate increases, keeping borrowing costs low.
So far, Fed officials have played down the importance of both factors, insisting that they are focused on raising rates slowly as the labor market tightens.
Powell may make his public debut as the Fed’s chairman in mid-February, when the House and Senate hold biannual hearings on monetary policy. The dates have not been announced, but the testimony will offer Powell a first chance to calibrate expectations for his tenure.
The next meeting of the Fed’s policymaking committee is scheduled for March 20-21.