Los Angeles Times: Fed holds off on interest rate hike, downgrades economic forecast

Federal Reserve Chairwoman Janet L. Yellen speaks in May at the Institute for New Economic Thinking Conference on Finance and Security at the International Monetary Fund in Washington. (Jacquelyn Martin / Associated Press)

By Jim Puzzanghera
June 17, 2015

Federal Reserve policymakers on Wednesday kept the central bank’s benchmark short-term interest rate near zero, opting against the first increase since 2006 after determining the economy still isn’t strong enough to handle it.

Fed officials sharply downgraded their economic forecast for this year. They projected the economy would grow between 1.8% and 2% this year, well below the range of 2.3% to 2.7% in its last forecast in March.

If they’re correct, annual growth would be the worst since 2011 and would be far from the breakout performance some economists had hoped for this year.

In a statement after its two-day policymaking meeting, Fed officials said the economy “has been expanding moderately” after having improved little during the first quarter.

While the housing market “has shown some improvement,” central bank policymakers said exports and investments by businesses have been soft.

Central bank policymakers were less optimistic about improvements in the unemployment rate than they were three months ago, though they noted that the pace of job gains had improved.

The Fed officials forecast the unemployment rate, which was 5.5% in May, would drop to no lower than 5.2% by the end of the year. In March, they forecast the jobless rate would drop to as low as 5% this year.

Annual inflation is expected to be between 0.6% and 0.8% this year — the same as was forecast in March. That’s well below the Fed’s 2% target.

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