The Federal Open Market Committee decided to keep the federal funds rate at zero to 0.25%, it announced Wednesday at the end of a two-day meeting.
“The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” the members said in a statement. They also repeated their caveat that even after employment and inflation improve, “economic conditions may, for some time, warrant keeping the target federal funds rate (low).”
All but one member agreed with the decision; Federal Reserve Bank of Richmond President and CEO Jeffrey Lacker, who preferred to raise the rate by 25 basis points at this meeting, voted against it.
That makes a rate hike by the end of the year less likely, said Lindsey Piegza, chief economist for fixed income at Stifel Nicolaus & Co. “The committee’s hope for a 2015 liftoff was based on an expectation of further momentum. The economy has fallen short, thus policymakers are forced to remain on the sideline waiting for further domestic activity. We are looking for the status quo at best,” Ms. Piegza said in an e-mail.
With much of the economic data since the September meeting on the weak side, FOMC members “kind of erred on the optimistic side in their assessment,” said Robert Tipp, managing director and chief investment strategist at Prudential Fixed Income, in a telephone interview. “They’re really giving the impression that the markets have to be on guard for the next meeting. They want the markets to be braced for a rate hike.”