Citing slow economic growth and low inflation, the Federal Reserve decided against raising interest rates in June and anticipates only gradual increases in coming months.
In a June 21 report to Congress, Federal Reserve Chairwoman Janet L. Yellen said the economy has made further progress toward full employment, and inflation continues to remain under 2%. However, she noted the pace of growth in the labor market and overall economy slowed during the first quarter.
“Economic growth has been uneven over recent quarters,” Yellen said in remarks before the U.S. Senate Committee on Banking, Housing and Urban Affairs. “U.S. inflation-adjusted gross domestic product is currently estimated to have increased at an annual rate only .75% in the first quarter of the year.”
Because of those factors, the Federal Open Market Committee of the Federal Reserve decided to maintain its target range for future rate hikes at between .25% and .50%. However, after Britain’s vote last week to leave the European Union and the economic uncertainty it has caused, most analysts believe a near term rate hike is unlikely.
Economic conditions
“In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2% inflation,” a June 15 Federal Reserve news release stated. “This assessment will take into account a wide range of information, including measures of labor market conditions, indications of inflation pressures and inflation expectations, and readings on financial and international developments.”
Yellen said despite the slower than expected first quarter growth, she expects economic activity to pick up in the coming months.
“The recent pickup in household spending, together with underlying conditions that are favorable for growth, lead me to be optimistic that we will see further improvements in the labor market and the economy more broadly over the next few years,” Yellen said during her Senate testimony. “As a result, the FOMC expects that with gradual increases in the federal funds rate, economic activity will continue to expand at a moderate pace and labor market indicators will strengthen further.”
To leare more about the Fed’s June meeting, see http://www.federalreserve.gov/newsevents/press/monetary/20160615a.htm.
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