Fed Holds Steady on Federal Funds Rate

In its post-meeting statement, the Federal Open Market Committee (FOMC) of the Federal Reserve announced its decision not to raise the current federal funds rate of 0.25 to 0.50 percent. Although FOMC members acknowledged further improvement in the U.S. economy and jobs markets, the committee cited the following as influencing its decision not to raise the current federal funds rate:

• Household income continued to rise, but consumers have "moderated" their spending.
• Inflation is expected to remain below the Fed's goal of two percent in the near term.
• Temporary influences including low energy and import prices are expected to ease.

FOMC monetary policy decisions made in April's meeting were guided by the Fed's dual mandate of achieving maximum employment and its inflation goal of two percent. Labor markets improved since the Committee's March meeting, but inflation is not expected to reach the Fed's goal in the near term

No Fed Rate Increase in April; Moderate Increases Expected

While the FOMC did not raise the federal funds rate, its statement suggested that future rate increases are likely. Potential increases in the federal funds rate would be gradual into the medium term. FOMC's April statement hinted that incremental rate increases over time would be expected to facilitate further economic growth and help achieve the two percent inflation goal. According to the statement, any potential increases in the federal funds rate would be "accommodative." This indicates that FOMC members do not want to raise rates too quickly, which could interfere with current economic growth.

Fed Concerns over Global Economy Ease

Notably absent from April's FOMC statement were concerns over global economic conditions and developments. In March, the Fed characterized global economic and financial conditions as a risk to U.S. economic growth, but April's statement said that FOMC members would continue monitoring global news and developments with no mention of potential risks.

Analysts said that the Fed could have been "more hawkish" in its position, but also said that a rate increase could occur in June if FOMC members conclude that economic conditions are favorable. FOMC statements typically indicate that monetary policy decisions are pre-determined way, but rely on the committee's ongoing review of global and domestic financial and economic developments.

Unless economic developments intervene, Fed policy makers opened the door to a rate increase in June. Past FOMC statements indicated plans to raise the federal funds rate up to four times in 2016, but these plans were revised to two potential rate increases for 2016.

Federal Reserve: No Change on Target Fed Funds Rate

The Federal Open Market Committee (FOMC) of the Federal Reserve did not move to increase the Fed's target federal funds rate, which is currently 0.00 to 0.250 percent. Although the committee acknowledged further progress toward achieving the Federal Reserve's dual goal of maximum employment and an inflation rate of two percent, committee members indicated that they want to see further improvements in both areas before raising the federal funds rate.

In its customary post meeting statement, the FOMC said that it may not raise rates when both goals have been achieved. This statement may have been meant to calm ongoing speculation that the Fed will soon raise rates. The statement also said that FOMC members may "elect to keep the target federal funds rate below levels the committee considers normal in the longer term." This stance suggests that the Fed wants to be very sure that economic improvement is on a solid track before it raises rates.

The statement further indicated that the FOMC is not completely influenced by the Fed's goals of maximum employment and two percent inflation; instead, the committee said that it will consider ongoing domestic and global news and economic reports along with readings on financial and economic developments as part of its decision to raise or not raise the target federal funds rate.

Analyst reactions to the decision not to raise rates suggests that the Fed is likely to raise rates at its September meeting and possibly again in December.

Fed Chair Janet Yellen's Press Conference

Fed Chair Janet Yellen gave a scheduled press conference after the FOMC statement was issued and answered questions on a variety of topics. Ms. Yellen noted that retiring baby boomers are expected to take up slack in employment lags; as boomers retire, they drop out of the work force and reduce the number of people actively seeking employment.

Ms. Yellen also noted that when the Fed does raise rates, seniors and retirees could benefit from higher yields on savings.

In response to questions about when the Fed will raise its target federal funds rate, the Fed Chair said that the Fed has not decided when to raise rates and said that unfolding economic developments would play a role when the Fed does decide to raise rates.

Ms. Yellen encouraged emphasis on when the Fed will make its first rate hike. She recommended focusing on "the entire trajectory" of rate increases, which some analysts took to mean don't panic about the first rate increase.