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FOMC meeting: first rate hike likely in 2015

The US Federal Reserve on Wednesday voted unanimously to leave interest rate unchanged at 0.25%. Officials showed readiness to raise borrowing costs later in the year, but assured the markets that the pace of tightening will be gradual.

The Fed admitted the economic recovery that was taking place in Q2, pointing to the pace of job creation, consumer spending and housing sector activity. Price growth has stabilized amid the energy market improvement.

“My colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained,” the Fed’s chief Janet Yellen said in a press conference that followed the meeting.

The Fed remains cautiously optimistic despite the forecast downgrade. The 2015 GDP forecast was cut from a 2.3-2.7% range to a 1.8-2% range. Jobless rate forecast was revised up from 5-5.2% to 5.2-5.3%. The new forecasts reflect the economic downturn in Q1. Inflation forecast was left unchanged in a 0.6-0.8 range. Forecasts for 2016 also remained unchanged.

The average FOMC 2015 fed’s fund projections held unchanged at 0.625%. That leaves the door open for two rate hikes in H2. Year-end 2016 and 2017 projections fell to 1.375% and 2.875% respectively. 15 of 17 Committee members believe it is appropriate to start raising rates this year. 

Yellen

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