Fed keeps rates at zero, but hike expected this year

Officials at the Federal Reserve voted unanimously to leave the benchmark federal funds rate unchanged at zero but their positive economic outlook suggests the US central bank is on track for a rate hike this year.

The Federal Open Market Committee’s June statement improved its economic outlook saying US economic activity has been expanding ”moderately” after having changed little during the first quarter.

The pace of job gains picked up while the unemployment rate remained steady, it says in a statement, with the housing sector also improving as well as consumer spending.

The central bank, however, confirmed its lowered forecast for growth to between 1.8 and 2 per cent, below the previous projection of 2.3 to 2.7 per cent. 

The Fed also did not change its tone regarding inflation and inflation expectations at 2 per cent, saying that the timing of the initial hike remains data-dependent.

JPM Global Bond Opportunities Fund fund manager Iain Stealey says over the near term he expects two rate hikes in 2015 – in September and December – with a year-end rate of 0.75 per cent.

He says: ”We expect an additional four rate hikes in 2016 to 1.75 per cent by year end. With that will come continued moderate volatility, but that volatility will eventually be dampened by liquidity from central banks.”