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Leaving interest rates unchanged, Fed sees ultra-slow pace of hikes ahead

 
Published June 16, 2016

WASHINGTON — The Federal Reserve signaled Wednesday that it foresees an exceedingly slow pace of interest rate hikes ahead — and is in no hurry to resume them.

In explaining its decision to keep interest rates unchanged, the Fed expressed concern about a recent slump in U.S. job growth and about the potential consequences of Britain's vote next week on whether to leave the European Union.

The Fed suggested in a statement after its latest policy meeting that it needs a clearer economic picture before resuming the rate hikes it began in December. The Fed raised its key policy rate modestly then from a record low near zero, where it had been since the depths of the Great Recession in 2008.

The Fed did note at its most recent meeting that the housing market is improving and that the consequences of an export slowdown have lessened. Yet it signaled concern about the uncertainty of employment growth and global developments.

Some economists think a July rate increase is possible if the job market rebounds from a dismal May and financial markets remain calm after Britain's vote next week on whether to leave the European Union.

"There are too many uncertainties to justify pulling the trigger" now, said Sung Won Sohn, an economist at the University of California's Martin School of Business. The Fed "wants to make sure that the surprisingly weak payroll number for May is a temporary phenomenon and not a harbinger of a weaker economy to come."

In addition to the May jobs report, other economic barometers have also sown doubts — from tepid consumer spending and business investment to a slowdown in worker productivity to stresses from China and other major economies. And inflation remains below the Fed's target.

The Fed's updated economic forecasts issued Wednesday show that among the 17 Fed policymakers, six think there will be only one rate hike this year, up from just one official who thought so at the Fed's March meeting. Still, a majority of Fed officials continue to envision two rate hikes this year.

The officials sounded a slightly more downbeat note about the economy's growth this year and next compared with their forecasts three months ago. They now expect just 2 percent growth both this year and next year, down from their previous forecast of 2.2 percent for this year and 2.1 percent for 2017.