Federal interest rates will stay the same for now at zero to 0.25%, the Federal Open Market Committee announced Thursday, with several members predicting the first hike will not come until 2016.
Most members still predicted a hike this year, but four said it would be next year or later, up from two members at the last meeting in July. Their median projection was that the rate would reach 1.5% in late 2016, 2.5% by late 2017, and 3.5% by 2018.
For pension funds, “the immediate effect is a positive for the asset portfolio, but you need to look at what that does to the liability of the plan. Liabilities could be growing faster than the assets today, and the net effect could be negative when considering the funded status,” said Nicholas Botticelli, a pension investment specialist at OCIO provider Hirtle Callaghan.
The increase to four managers in predicting a rate hike later than this year was a surprise, said Brandon Swensen, co-head of fixed income for RBC Global Asset Management. “We thought they would be getting closer to consensus. … They're actually moving away from consensus. They seem to be further away from tightening than they were in July.”
Chairwoman Janet Yellen, at a news conference following the meeting, muted expectations for the first rate hike, which she said is likely to remain “highly accommodative for quite some time. … The importance of the initial increase should not be overstated. … The specific timing of the initial increase is far less important for the economy than the entire expected path for interest rates,” Ms. Yellen said.