Mercado Released [22 June 2015]:FED

The Federal Reserve confirmed last week that they will not raise interest rates this month. The chairwoman of the Fed, Janet Yellen, stated that the central bank does plan to act as soon as possible, however she did not offer clear guidance of the path for US interest rate hikes. The Fed also released its latest economic projections which indicate that there could be two interest rate hikes this year. The bank has maintained their inflation outlook, whilst they trimmed their forecast of growth. It is also expected that the economy will not hit full employment during 2015. Economic activity suggests that the economy is moving at a moderate pace, with most Federal Open Market Committee (FOMC) members having lowered their rate expectations for the current year. When the Federal Reserve eventually does increase interest rates, rates are expected to move by a mere 0.25% and further increases will occur on a slow and incremental basis. The “dot plot” which forms part of the FOMC’s economic projections, provides further insight about the possible monetary and economic conditions in the upcoming months. The dot plot shows that all the 17 members feel that interest rates will sit between 0.5% and 0.75% as at the end of the year.

Week 26 2015