Fed Announces Slow Approach to Interest Rate Increases in 2015

Author: Tory Barringer December 17, 2014Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services34

The Federal Reserve announced Wednesday that it intends to take a slow approach to raising interest rates in the coming year, even as the economy continues to strengthen.

In a policy statement released following the last 2014 meeting of the Federal Open Market Committee (FOMC), the central bank reaffirmed its view that the economy is expanding at a "moderate pace," pointing to continued improvements in the labor market tempered by still-high numbers of unemployed and underemployed Americans and slower growth in the housing sector.

Given the current climate, the committee hinted that it will take steps to raise short-term interest rates in 2015, though it still would not commit to a time frame, saying only that "it will likely be appropriate to maintain ... the [current] federal funds rate for a considerable period of time."

"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy," the Fed said in its statement.

While the phrase "considerable period of time"—commonly interpreted by analysts to be around six months—is not a new addition to the Fed's language, policymakers did clarify that they're counting the time from when the central bank ended its asset purchase program in October. If the interpretations hold out, that could signal an increase as soon as April, though many economists expect June is more likely.

In a survey, 15 of 17 officials at the Fed predicted an increase in interest rates starting next year, with the other two saying the first hikes will come in 2016.

At the same time, their forecast for rates slipped to 1.125 percent by year-end 2015, down from the last outlook in September.

Perhaps encouraged by recent monthly payroll numbers, officials predicted the unemployment rate next year will drop to 5.2–5.3 percent, a more optimistic outlook than in September. As of November, the national unemployment rate was 5.8 percent.

Economic growth, meanwhile, was pegged at 2.6–3.0 percent for 2015, unchanged despite a rosier outlook for 2014.