Federal Reserve Keeps Interest Rates Unchanged But Forecasts Hike This Year

By Steve GoldsteinMarketWatch Pulse

The Federal Reserve on Thursday opted to keep interest rates steady, attributing the lack of a move to "global economic and financial developments" that in the central bank's dry language mean China's economic turmoil and U.S. stock-market volatility. The Fed said those developments may restrain economic activity "somewhat" and are likely to put further downward pressure on inflation in the near term. By a 9-to-1 vote, the Fed kept to its current 0-to-0.25% federal funds rate targeted range, but the accompanying dot plot forecast an interest rate of 0.40% by the end of this year -- meaning the central bank would have to hike during its scheduled October or December meeting to achieve that estimate. This is a scenario equivalent to what many economists called a "hawkish pause." Richmond Fed President Jeffrey Lacker dissented and called for a quarter-point rate hike.

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