Economy Watch: FOMC Holds Rates Again

Unsurprisingly, the Federal Open Market Committee again decided against raising interest rates, but for a different reason than the one given in March.

1-low-interest-ratesAs expected on Wednesday, the Federal Open Market Committee, at the end of its latest two-day meeting, declined to adjust the federal funds rate. The central bankers essentially said that the economy was OK, but not good enough to warrant a rise in interest rates. The cost of borrowing for real estate deals thus remains quite low.

Or, as the FOMC put it: “Against this backdrop, the committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

In fact, the April FOMC statement was very similar to the March statement, which also treaded water when it came to interest rates. But there was less emphasis on “global” risks in the April statement, and more emphasis on low inflation. Perhaps it means the Central Bank doesn’t believe a Chinese implosion is very likely, after all.

The April statement on inflation: “Inflation has continued to run below the committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports.” Does it mean interest rates might go up if inflation heats up a bit by the time of the next FOMC in June? As usual with the Fed, the answer is a definite maybe.