WASHINGTON—Indications are the Federal Reserve may back away from its original plan for four rate hikes in 2016.
Federal Reserve Chair Janet Yellen Wednesday, testifying on the semiannual Monetary Policy Reportbefore the House Financial Services Committee, addressed slowing GDP, problems in China and the markets, and how those things might impact monetary policy.
“Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar,” stated Yellen. “These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market . . . The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”
NAFCU Chief Economist and Director of Research Curt Long pointed out Yellen’s references Wednesday to emergent risks posed by weak financial markets and the declining prospects for growth abroad.
“While she did not indicate how this would play into the FOMC’s outlook for future rate increases, it seems far more likely than not that the committee will revise down its expectation of four rate hikes in 2016 in their March release,” Long said.