Federal Reserve policymakers on Wednesday kept their benchmark interest rate near zero and reiterated a plan to be patient about future hikes, indicating no increase is coming until at least June despite a more upbeat assessment of the U.S. economy.
Fed officials said the economy is expanding at a “solid pace,” a rosier view than the “moderate pace” in December’s policy statement.
Recent job gains have been “strong” and falling energy prices “have boosted household purchasing power,” the Fed said in Wednesday’s statement, issued after a two-day meeting.
Fed policymakers continue to view the sharp decline in oil prices as temporary, but said the drop has had a greater effect on inflation than was described in the December statement.
Largely because of declining energy costs, inflation now has “declined further below” the Fed’s 2 percent annual target, the Fed said. The latest government inflation data tracked by the central bank, for the 12 months that ended in November, showed inflation was 1.2 percent.
The statement, which was approved unanimously by the 10 voting members of the Federal Open Market Committee, was in line with analyst expectations.
The Fed gave no indication that an interest-rate hike would take place before the middle of the year, which is what experts have forecast.
“They’re going to wait and they’re going to be patient,” said John Silvia, chief economist at Wells Fargo.
He’s still expecting a rate hike in June, but said Wednesday’s statement lowered the probability.
“We’d have to see some turnaround in inflation numbers, and I don’t think we’re going to see it that quick,” Silvia said.
Fed policymakers are trying to decide when to start raising the central bank’s benchmark short-term interest rate as the U.S. recovery strengthens. But the calculation is complicated by plunging oil prices, which have pushed inflation lower, and slow growth abroad.
In a nod to the world economy, Fed officials said that “readings on … international developments” would be one of the factors they considered in deciding when to raise rates. The language was not in the December statement.
Fed officials signaled in December that the first rate hike in more than eight years was approaching when they changed the wording of the forward guidance in their statement.
The Fed had said for months that it expected to wait a “considerable time” after ending its bond-buying stimulus program before lifting rates. The program ended in October.
In their December statement, Fed officials said they would be patient in starting to normalize monetary policy. The “patient” wording had been used in 2004 as the Fed prepared to raise rates after a prolonged period of holding them low.
Fed Chairwoman Janet L. Yellen has said patience means a rate hike is unlikely for at least the next two meetings. The FOMC has eight scheduled meetings a year. The next ones are in March, April and June.
The Fed’s last rate hike was in June 2006. Policymakers began lowering its key rate in September 2007 as the economy worsened and have kept it near zero since late 2008.
Most Fed officials indicated in December that they expected to start raising rates in 2015, and analysts are expecting a hike around mid-year.
But with the global economy struggling, a CNBC survey this week found experts expect the first hike to be in September. That’s two months later than the survey found in December.