The Federal Reserve will be “patient” in moving toward raising short-term interest rates, the central bank said Wednesday, but it also will monitor the increasingly troubled global economy in making its decisions.
The Fed’s monetary policy committee mostly left its plans unchanged from December in a statement released after a two-day meeting in Washington. But it added “international developments” to the criteria it will assess in deciding when to normalize policy by raising rates from zero.
Fed officials mostly brushed off concerns about the threat of disinflation and falling oil prices to the U.S. economy, however.
The statement said that “recent declines in energy prices have boosted household purchasing power” amid “strong” job gains.
Inflation “is anticipated to decline further in the near term,” the statement acknowledged, “but the committee expects inflation to rise gradually toward 2 percent over the medium term.”
Before Wednesday’s announcement, bond market prices reflected expectations that the first rate increases likely would come at the September meeting of the Fed’s monetary policy committee.
The expected timing of the first rate hike has been pushed back as global economic growth has slowed and inflation has slipped in recent months.
Stripping out the cost of food and energy, annual inflation stood at 1.4 percent in the latest reading of the Fed’s preferred gauge, well below the central bank’s 2 percent target. Headline inflation was 0.8 percent in the latest release of the consumer price index, having been driven down by the collapsing prices of oil and other commodities.
Up to this point, Fed officials have mostly said that falling inflation is a temporary effect of oil price movements and not a sign of underlying weakness in the economy.
Federal Reserve Chairwoman Janet Yellen said at the December meeting that the central bank would not raise rates for the “next couple of meetings,” and that decisions after that would depend on incoming economic data.
Yellen also said the process of normalizing policy for the first time since the 2008 financial crisis would begin this year. Nevertheless, some prominent economists have suggested in recent weeks that the rate increases could slip into 2016 and that Fed officials could be hesitant to raise rates while inflation is well below the 2 percent goal.
None of the voting members of the monetary policy committee dissented from Wednesday’s announcement.
