FOMC: When interest rates rise again, it will be gradual

Prices for Fed funds futures on Wednesday showed traders had pushed back bets for the next rate hike to July from June and modestly trimmed bets on a March hike.

Considering the low inflation forecast, the interest rate hike remains in doubt.

But after taking the rate hike in stride in late December, financial markets started tumbling this month amid concerns about slowing growth in China and a continued slide in oil prices. The Dow Jones industrial average shed more than 7 percent of its value in the first three trading weeks of 2016.

In a statement released Wednesday afternoon, the Fed acknowledged the increasingly uncertain global backdrop, which “was a clear nod at the fact that macro factors are impacting the Fed’s calculus”, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Some economists expected the Fed to more clearly voice concerns that the worldwide and market developments could crimp the USA economy. Last month, the Fed provided a more upbeat view, saying the risks to its economic and labor market outlook were “balanced”.

Prior to the FOMC statement, U.S. stock prices were buoyed by a rebound in crude prices following data showing a jump in weekly demand for oil products and news Russian Federation was discussing a possible output pact with OPEC. Falling energy prices make higher inflation much less likely.

“It was very noncommittal”, Asha Bangalore, economist at Northern Trust, said of the Fed’s statement.

The Fed noted that the inflation rate remained below the long-term target of 2% over the period, since its last statement. As their first meeting of the year came to a close, the Federal Open Market Committee (FOMC) agreed to leave the federal funds rate at its current level due to economic worries. The increase ended an unprecedented seven-year stretch of keeping the rate near zero to try to boost the economy. The Fed still is anxious about inflation and not ready to support growth even though they themselves see that the economy has slowed. Markets don’t really believe that’s possible: many investors believe the Fed will only raise rates twice this year. “They want to see if everything in the global economy and financial markets is really going to bleed through and effect inflation and their outlook for the economy”.

Estimates of U.S. economic growth in the fourth quarter are around 0.8 percent, according to the CNBC Rapid Update, down two-tenths of a point from the previous forecast.

The Fed did repeat that it expects rates to increase at a gradual pace.

“Markets may have wanted to hear something more dovish”, he said, using a term that refers to a less aggressive stance on raising interest rates.

Copper for March delivery on the Comex division of the New York Mercantile Exchange rose 2.55 cents or 1.3 percent to $2.0630 per pound, slightly lower than before the release.