Fed sticks with near zero rates for now

The Federal Reserve agreed to keep rates near zero Wednesday, but is eyeing a hike likely later this year if the economy continues to grow.

The central bank largely shrugged off some recent disappointing economic data, saying in a policy statement it expects the economy to continue expanding moderately in the coming months.

{mosads}But Fed Chairwoman Janet Yellen sought to emphasize Wednesday that if and when the Fed decides to raise rates, it is just the beginning of a lengthy process of bringing rates back to normal levels.

“The importance of the timing of the first decision to raise rates is not something that should be overblown,” she told reporters. “What matters is the entire path of rates and as I’ve said, the committee anticipates economic conditions that would call for a gradual evolution.”

While the central bank lowered its economic growth expectations for 2015, and now expects a higher unemployment rate this year, data from the Fed shows the vast majority of Fed officials expect a rate hike before the year is done.

Yellen indicated that if things proceed as expected, the Fed will likely be in a position to begin raising rates in the second half of the year. But, as she frequently does, she emphasized that the incoming economic data will have to back up those expectations before the Fed acts.

That outlook is particularly important currently, as the economy showed practically no growth in the beginning of 2015. That means the Fed will be looking for an anticipated pick-up before deciding to hike rates.

“They’re expecting a pickup in growht in the second half of this year,” said Yellen. “We will be making decisions, however, that depends on the actual data that we see in the months ahead.”

A chart provided by the Fed shows that 15 of 17 Fed officials expect the first interest rate hike in nearly a decade to come sometime in 2015. But to back up Yellen, most also predict rates will rise slowly, with no officials expecting rates to exceed 1 percent until 2016 at the earliest.

The Fed’s new policy statement said that job gains had “picked up” as the economy has grown moderately. But the slow start to 2015 did lead the Fed to lower its overall economic projections for the year.

In March, the Fed estimated the economy would grow 2.3 to 2.7 percent in 2015; that is now down to 1.8 to 2.0 percent. On unemployment, the Fed previously expected the rate to drop to 5.0 to 5.2 percent, it now expects to end the year around 5.2 to 5.3 percent.

This post updated at 3:49pm.