The Latest: Fed sees slower growth this year and next

WASHINGTON – The Latest on the U.S. Federal Reserve’s monetary policy meeting, which ended at 2 p.m. with the release of a policy statement. A news conference by Chair Janet Yellen will follow (all times are Eastern):

____

2:10 p.m.

Federal Reserve officials are less optimistic about the economy’s growth this year and next, compared with three months ago, according to quarterly economic forecasts issued at the end of their two-day meeting.

Fed policymakers now expect growth will be just 2 per cent this year and next, down from previous projections of 2.2 per cent this year and 2.1 per cent in 2017. They also expect 2 per cent growth in 2018, the same as in March.

With growth likely to be modest and inflation under its 2 per cent target, the Fed has the leeway to raise rates more slowly. It also projected a more gradual path of rate hikes in 2017 and 2018.

Their unemployment rate forecasts were little changed. They see the rate at 4.7 per cent at the end of this year, the same as it is now. It will tick down to 4.6 per cent next year, the Fed projects, and remain at that level in 2018.

The Fed’s preferred measure of inflation will be 1.4 per cent this year, slightly higher than the March forecast of 1.2 per cent. Their 2017 and 2018 forecasts are 1.9 per cent and 2 per cent, respectively.

____

2:05 p.m.

Federal Reserve policymakers still expect to raise interest rates twice this year, the same expectation they had in March, despite a recent slowdown in hiring. But they foresee fewer interest rate increases in 2017 and 2018 compared with three months ago. That suggests they are less worried about the economy overheating and pushing inflation higher.

Fed officials now expect they will raise the short-term interest rate they control three times next year, compared with a forecast of four in March. And they will raise rates three more times in 2018, compared with a previous forecast of four. They foresee the short-term rate reaching 2.4 per cent by the end of 2018, still quite low by historical standards.

The projections reflect the forecasts of all 17 participants in the Fed’s deliberations, but only 10 of those members actually vote on the Fed’s decisions.

____

2:00 p.m.

No surprise from the Federal Reserve — which held off raising interest rates.

Fed officials just ended their June meeting by presenting a mixed picture about the U.S. economy. Overall growth is heating up after a lacklustre start to the year. But the job market shows signs of stalling: Monthly job gains weakened in April and May, while measures of income growth fell. The Fed is still monitoring inflation and global economic developments, but it offered little insight into the changing impact of either factor.

So the Fed decided to wait until the U.S. economy pulls into sharper focus. Its forecast signalled that it will hike the short-term federal funds rate at most twice this year and possibly only once. That rate will stay at its range of 0.25 per cent to 0.5 per cent, at least until the July meeting and potentially longer.

____

1:00 p.m.

Federal Reserve officials are an hour away from wrapping up their June meeting. Stocks have edged up in trading before the decision regarding short-term interest rates.

Most Fed watchers expect the U.S. central bank to hold its federal funds rate at its current level — a range between 0.25 per cent and 0.5 per cent. A stunningly weak May jobs report — with only 38,000 jobs being added — and the possibility of the United Kingdom pulling out of its European Union commitments have left Fed Chair Janet Yellen emphasizing uncertainty in the economy.

What likely matters will be the comments in the Fed statement and its economic projections to be released at 2 p.m. Does the Fed see growth as stable? Does it feel certain that inflation will soon reach its 2 per cent annual target? And how worried should the Fed be about the hiring slowdown after years of strength?

____

10:30 a.m.

Almost an hour into the trading day and all major U.S. indexes are rising strongly.

The Dow Jones industrial average rose 53 points, or 0.3 per cent, to 17,728. The Standard & Poor’s 500 index gained 7 points, or 0.3 per cent, to 2,082. The Nasdaq composite picked up 15 points, or 0.3 per cent, to 4,858.

Europe and Asian markets are also up. The only exception is Britain’s FTSE, which fell 2 per cent with the nation weighing an exit from the European Union.

____

5:05 a.m.

Global stocks are higher as investors look to the Federal Reserve’s latest meeting for hints on when it may raise interest rates again.

The Fed is expected to keep its rates on hold at its meeting, which ends Wednesday, so the focus will be on its statement and on the comments by Chair Janet Yellen at her news conference.

In early trading in Europe, Germany’s DAX was 0.9 per cent higher at 9,601 and Japan’s Nikkei 225 rose 0.4 per cent at 15,920. Futures for the Dow and the S&P 500 were both up 0.3 per cent.

The dollar, whose value is influenced heavily by interest rate expectations, was up 0.2 per cent against the Japanese yen at 106.31 yen. But it was weaker against the euro, which rose 0.1 per cent to $1.1222.

For weeks, the Fed had been expected to raise interest rates this summer, possibly as soon as June. Those views were dashed by weak jobs reports. So investors will be eager to get clues on the Fed’s outlook on future rate increases.