Fed keeps benchmark interest rate steady

The U.S. Federal Reserve has decided to keep its interest rate where it is, saying the economy is not yet ready to withstand a modest increase.
After raising rates in December, economists have been anxiously awaiting the Federal Reserve's next move. (Cliff Owen/Associated Press)

The Federal Reserve has decided to keep its interest rate where it is, saying the U.S. economy is not yet ready to withstand a modest increase.

In a statement, the Fed said "the case for an increase in the federal funds rate has strengthened" but the Fed "decided, for the time being, to wait."

The bank surprised markets with a rate hike in December, but has stayed on the sidelines ever since.  A majority of economists who cover the Fed are expecting at least one more modest hike this year.

That's unlikely to come at its next meeting in November, since the central bank has historically been reluctant to do anything so close to a U.S. election day. "A move is not imminent, i.e., not on November 2 or six days before the election," BMO economist Michael Gregory said.

Which means the most likely day for a change would be at their final meeting of the year on December 14.

At a press conference following the release of the statement, chair Janet Yellen said the Fed was willing to sit on the sidelines for a while longer because it can afford to — low interest rates are helping the economy, without causing too much harm.

"The economy has a little more room to run than previously thought," Yellen said.

While expected, the decision wasn't unanimous. Three of 10 Fed members wanted to hike rates, but the majority opted to stand pat — for now.

"We view this statement as a set-up for a hike later this year," TD Bank economist Michael Dolega said. "We believe that the Fed is running out of room to keep rates unchanged given the economic performance."


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