More US Fed officials see just 1 rate increase this year

AP News
Posted: Jun 17, 2015 2:26 PM

WASHINGTON (AP) — More Federal Reserve policymakers expect a slower increase in short-term interest rates this year than they projected three months ago, reflecting a sharp slowdown in the economy at the start of the year.

Five of the 17 Fed policymakers now forecast that the short-term rate will be 0.375 percent at the end of this year, up from just one in March. Two foresee no increase until next year, the same as in March. The current rate is approximately 0.125 percent, so only one quarter-point increase would bring it to 0.375 percent.

The median forecast remains 0.625 percent, which would require two increases.

A lower projected rate at the end of the year suggests policymakers expect the first increase may come later than they thought three months ago.

Fed policymakers also now project the short-term rate they control will rise at a slower pace. They expect the rate will be lower at the end of next year than they did three months ago. The median forecast fell to 1.625 percent from 1.875 percent.

The lower rate expectations are consistent with the Fed's sharp cut in its economic growth forecast for this year. Fed policymakers expect the economy will expand between 1.8 percent and 2 percent in 2015, down from a 2.3 percent to 2.7 percent forecast in March.

Still, even the lowered estimate suggests the Fed is optimistic about the second half of this year. The economy would have to grow at about a 3 percent annual pace in the third and fourth quarters to reach the Fed's new estimate.

The statement released by the Fed at the end of its two-day meeting also painted a brighter picture than it did in April. It said the economy "has been expanding moderately" and that hiring has picked up.

Even so, the Fed foresees a higher unemployment rate in the final three months of year, up to 5.2 percent to 5.3 percent, from 5 to 5.2 percent.

The sharp cut to this year's growth forecast reflects a disappointing first quarter. Harsh winter weather that kept consumers away from shops and a sharp cutback in spending by oil drilling companies hammered the economy, which actually shrank at a 0.7 percent annual rate. Most analysts expect that figure will be revised higher later this month.

In recent weeks, however, there have been signs growth is picking up. Employers are hiring at a robust pace, car purchases reached a nine-year high in May and consumers have also stepped up their spending at retail stores.

Economists now expect growth will reach an annual rate of about 2.5 percent in the current April-June quarter.