WASHINGTON — The Federal Reserve voted unanimously to leave the benchmark interest and discount rates untouched at 0.5 percent, but expects to keep raising rates gradually throughout the rest of 2016, the Fed announced Wednesday.
The central bank froze the rate in order to “[monitor] the global economy and financial developments” along with the weakened stock market. The Fed last raised the rates six weeks ago, the first time in a decade, and traders are now projecting one or two more hikes to come.
There’s a slowdown in growth within China and elsewhere, and it increasingly looks like the “U.S. is the island of economic strength for at least the next year,” according to Mark Calabria, director of financial regulation studies at the Cato Institute, a libertarian think tank.
The Fed report noted that labor market, household spending and business fixed investment were strong.
However, the Fed should “have leaned against the wind” and raised rates now, according to Calabria, because an interest rate hike wouldn’t have been a drag on the economy, but waiting long-term might.
“They didn’t do it because it would have thrown off market expectations,” Calabria said. “The Fed is boxed in by market expectations, and it won’t move because markets are not going to move.”
Due to the slump in oil prices and non-energy imports, inflation continues to run under the Fed’s targeted rate of 2 percent, the Fed report said.
“I believe the Fed (report) is implicitly saying, ‘If need be, we will generate some inflation to meet our goal, which we might see in the March report,’” Calabria said.
Stocks dropped immediately following the announcement, but Calabria predicted they would normalize.