As expected, the Federal Open Market Committee (FOMC) did not change short-term interest rates at its June 14–15 meeting. Prior to the release of disappointing employment numbers for May, the Federal Reserve had positioned itself to begin hiking rates at its June meeting, with two increases anticipated in 2016. (At least one participant predicted just one increase in the federal funds rate this year, according to the latest economic projections.) The jobs report shifted those expectations to either the July 26–27 or the September 20–21 FOMC meetings. My own forecast would be for the hike to come in July, subject to incoming data between now and then. Along those lines, the press release has the following to say about the timing of future moves:
The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
In terms of the economy, FOMC participants said that “the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.” On this latter point, they noted the declining unemployment rate and better retail spending data. With that said, the Federal Reserve officials see real GDP growing 2.0 percent in 2016, down from an outlook of 2.2 percent in March, and the unemployment rate was seen falling to 4.7 percent, which happens to be the current rate. In terms of inflation, the Fed predicts core price increases of 1.7 percent this year.