Even less reason for Fed rate hikes now and in the foreseeable future

WHEN the US Federal Reserve raised its Fed Funds rate by 25 basis points last December, the expectations were four further rate hikes over the course of 2016. After the meeting of the Federal Open Market Committee (FOMC) on Wednesday, it seems highly unlikely that there will be more than two small hikes - if at all.

The Fed kept rates unchanged at its meeting. The latest projections from the FOMC put the Fed Funds rate at 0.875 per cent by end-2016, supporting the idea of two more quarter-point hikes this year. This is down from the target of 1.375 per cent projected last December, which implied there would be four hikes.

However, if projections of four hikes can turn into projections of just two within three months, it is possible that projections of two can become a projection of one, or even none, in a future FOMC meeting. And there is reason to believe that the Fed's reversion to dovishness may become reinforced as the year goes on.