Dollar dips as US Federal Reserve holds interest rates and cuts forecasts

Chris Papadopoullos
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Janet Yellen Holds News Conference On Fed Interest Rate Decision
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The US Federal Reserve kept it's main policy interest rates on hold today.

The target rate for the federal funds rate was kept at 0.25 to 0.5 per cent.

It marks the second meeting since December that the federal open market committee has held rates after rising them for the first time since the 2008-9 recession in December. The Federal Reserve also expects fewer rate hikes this year than it did December.

One member of the FOMC, Esther George, wanted to increase the interest rate range to 0.5 per cent to 0.75 per cent. The dollar dropped 0.5 per cent against the pound to £0.7072.

The FOMC said in its statement:

The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks.

Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.

According to the latest dot plots, which show where each member thinks rates should be at some point in future, all committee members believe interest rates will go up at least once this year.

"All the action here is in the projections, which show the median fed funds expectation for the end of this year dropping to 0.9 per cent from 1.4 per cent in December, so the Fed is now expecting only two hikes rather than four. We expected the new forecasts to imply three," said Ian Shepherdson from Pantheon Macroeconomics.

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