Weaker-than-expected job growth convinced members of the Federal Open Market Committee to stand pat on the federal funds rate and to be even more cautious going forward, said materials released at the end of a two-day meeting Wednesday.
Even if the labor market improves, the FOMC expects that economic conditions will warrant only gradual increases in the current 0.25% to 0.5% target range, said a FOMC statement, which noted that despite improvement in the housing sector and household spending, business fixed investment remains soft and inflation is unchanged.
“The economic projections reveal that the committee continues to back away from its earlier expectations of a steady dose of rate increases over the next several years. The FOMC sees reduced scope for growth to remain above trend this year and next, which points to the possibility that the committee's commitment to rate normalization may be waning,” said Steven Friedman, senior investment strategist with BNP Paribas Investment Partners.
All but two members of the committee expected the federal funds rate to remain below 1% in 2016. There was a wider range of views for 2017, with some committee members projecting rates between 1.5% and 2%, and one member going as high as 2.5%.