• As expected, the FOMC raised the federal funds target range this week by 25 basis points, to 0.75%–1.00%.1 Despite making the policy move, the FOMC’s own economic projections continued to paint a picture of an economy that should experience slow economic growth and low interest rates well into the future.
  • For example, the FOMC’s longer-run projection for GDP growth remained grounded at just 1.8%.2 Personal consumption expenditure (PCE) inflation expectations stayed at the Fed’s goal of 2.0%, while the Fed’s expectations for the longer-run federal funds target rate held steady at just 3.0%, well below the historical average at this point in a recovery.2,3
  • The only change to the Fed’s longer-run projections from its December meeting came from the unemployment rate, which was lowered modestly from 4.8% to 4.7%.2
  • As noted in both the statement and press conference accompanying the FOMC’s policy move, the Fed expects to be gradual in its efforts to normalize interest rates. With long-term interest rates expected to remain low by historical standards, investors could continue to face difficulties finding income through the coming years.

1 U.S. Federal Reserve, http://bit.ly/2nobFgj.
2 U.S. Federal Reserve, http://bit.ly/2nFr8ER.
3 Federal Reserve, NBER, FS Investments.

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