Interest rates probably won’t be going up any time soon.
The Federal Reserve left rates at their December levels on Wednesday, noting that it was “closely monitoring” the shaky global economy as it considered future decisions.
Last month’s decision to raise rates for the first time in years drew criticism given the tumultuous situation in markets worldwide and a U.S. economy far from overheating. Policymakers have been concerned with the potential for inflation to jump past their 2 percent target, but so far prices have risen far more slowly.
But a statement released Wednesday after the Federal Open Market Committee market indicated that it expected a “moderate pace” of economic growth and low inflation for a while to come, until the labor market can get strong enough to pressure prices upward.
“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation,” the statement added.
Since their December rate hike, markets in Europe and Asia have continued their wild ride. Oil prices have also remained on a downward trajectory, even dipping below $30 this week. While that’s been a boon to consumers, low oil prices have hurt the energy industry and stoked concerns that broader economic conditions may not be as rosy as once thought.
Moody’s Analytics senior economist Ryan Sweet told Bloomberg that “the Fed is really in a wait-and-see mode. They want to see if everything in the global economy and financial markets is really going to bleed through and affect inflation and their outlook for the economy.”
As the Washington Post’s Matt O’Brien pointed out Wednesday, perceptions of the Fed’s actions – or expectations of future actions – can often mean much more than what it actually does do. The decision to raise rates last month has not had a chance to really reverberate through the economy, but the perception that it was a bad idea is still affecting markets: “Sometimes increasing interest rates increases them by more than you increased them by. And sometimes you don’t even have to increase them to actually increase them.”
That’s especially important to keep in mind ahead of the Fed’s next policy meeting, in March. Policymakers keep insisting they want to raise rates, albeit slowly, to combat possible inflation. But without any obvious sign of inflation and slowing economic indicators worldwide, its possible that March will be a repeat of January rather than December.