Fed still assessing progress, sticks with low federal fund rates

Members of the Federal Open Market Committee reaffirmed their view Wednesday that the current zero to 0.25% target range for the federal funds rate remains appropriate.

The committee did not specify at what point it will raise the target range except to say it will continue to assess the progress toward “objectives of maximum employment and 2% inflation,” which could justify an increase, according to a statement released at the end of a two-day meeting.

Although there are a few points that could be read into, Wednesday’s statement mostly sounds like “we’ll talk to you again in June,” said Gene Tannuzzo, senior portfolio manager with Columbia Threadneedle Investments.

“The committee acknowledged recent weakness in a broad range of economic indicators but still remains confident that activity will pick up in the months ahead,” said Steven Friedman, director, central banks and official institutions at Fischer, Francis, Trees & Watts, in an e-mail following Wednesday’s announcement. “The committee wants to retain the optionality to raise rates in June, but in practice it is very unlikely that it will have enough confidence by then that the inflation outlook has firmed. As a result, a first rate increase in September seems most likely.”

Regarding inflation, the committee said it expects inflation to “remain at its low level in the near term … but gradually rise to 2% over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.”

“There is greater acknowledgement in the statement of the role of dollar strength in damping inflation, via import prices. Should the trade-weighted dollar resume the pace of appreciation seen early in (the first quarter), it could serve to push liftoff out to December,” Mr. Friedman said.