Fed raises target rates for next two years, cuts growth forecast

The reduced forecast for one-term interest rates suggests the Fed is still worried about sustained economic growth in the U.S.
By Ananth Baliga  |  June 18, 2014 at 3:35 PM
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WASHINGTON, June 18 (UPI) -- The Federal Reserve raised its forecast target benchmark interest rates for the next two years but signaled that growth could remain sluggish.

The Fed increased its growth forecast for 2015 to 1.13 percent and the forecast for 2016 to 2.5 percent, all the while emphasizing that interest rates would not be increased before 2015. But the central bank lowered its outlook for interest rates in the longer term, reflecting a slower growth rate for the U.S. economy.

The improved outlook suggests that the Fed is happy with the improving economic activity seen in the last two months and that it would reduce its bond buying program by $10 billion to $35 billion in July.

"Labor market indicators generally showed further improvement," the Fed said on an optimistic note. "The unemployment rate, though lower, remains elevated."

The Fed also issued a cautious growth forecast for 2014, anticipating growth to be between 2.1 and 2.3 percent from a range of 2.8 to three percent during its March meeting. The Fed said it was still looking closely at inflation and unemployment, which have improved but are still below the Fed's own expectations.

"Inflation continues to run well below our objective, we're still some ways away from maximum employment," said Fed Chair Janet Yellen.

This was the first committee meeting for Fed Governor and Vice Chair Stanley Fischer, Fed Governor Lael Brainard and new Cleveland Federal Reserve Bank president Loretta Mester.

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