Chances of March Fed rate hike drop after FOMC statement

Jan 28, 2016 (LBO) – The chances of a U.S. Fed rate hike in March dimmed after a FOMC policy statement on Wednesday acknowledged global economic risks, as analysts interpreted the carefully worded statement.

The FOMC decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent after a two-day policy meeting.

“The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook,” the statement said.

The probability of a March rate hike fell to 25 percent based on CME Fed Fund Futures. The probability of a June rate hike is now priced at 46 percent.

“Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year.”

“Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed,”

Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports, the statement added.

U.S. stocks retreated after the announcement with the Nasdaq down 2.2 percent, and S&P 500 down 1.1 percent.

The CME Fed Fund Futures can be viewed here. The FOMC statement can be read here.