It doesn’t look like 2016 is going to be the year of rate hikes we first thought it would be.
After taking one step forward in December, the Federal Reserve scaled back expectations for how high interest rates will rise this year as the U.S. continues to face global economic risks.
“A range of recent indicators, including strong job gains, point to additional strengthening of the labor market. Inflation picked up in recent months,” the Fed said in a policy statement on Wednesday.
"However, global economic and financial developments continue to pose risks" and will keep inflation low for the remainder of 2016, according to the statement.
The Fed did not provide a time stamp for the its next move, but fresh projections show that policymakers expect two quarter-point increases this year. That would put the fed funds rate at 0.875 by the end of 2016.
However, Frank Sorrentino III, chairman of ConnectOne Bank, a community lender based in New Jersey, doesn’t expect to see any rate hikes this year by the Fed.
“I would be surprised if we even got two additional rate hikes this year. I don't think the economy supports that at this point—I don't think inflation is where the Fed wants it … I think [the Fed is] going to be watching very, very closely. We can’t have a situation where our strengthening dollar just completely cuts off our exports," Sorrentino explains in the video above.
To hike or not to hike has been a dilemma for the Fed for quite some time, especially as the domestic economy continues to sputter along and the global economy is showing signs of slowdown.
“I think everyone got a little bit optimistic back at the end of 2015 that we’re on our way our way to rate hikes and a much stronger economy ... I've been telling our clients in all the communications that things are somewhat stable here and we will have a slow to moderate growth rate going forward and the Fed will react accordingly. The Fed's experiment in December—I think was just that—and I think we're going to see low rates for longer for a much longer period of time," Sorrentino says.