Investing.com -- In a widely expected move, the Federal Open Market Committee kept its benchmark interest rate unchanged on Wednesday leaving the Federal Funds Rate at its current level near zero for the 55th consecutive meeting, a streak that dates back to the peak of the Financial Crisis.
In perhaps the Federal Reserve's most anticipated monetary policy meeting in recent memory, the FOMC held short-term rates at its current level on Thursday, but did not rule out a rate hike later this year. Citing the negative effects of global economic weakness on U.S. inflation, the FOMC voted to leave its benchmark Federal Funds Rate at its current level between zero and 0.25%. The Federal Funds Rate, the rate at which banks use to lend to other institutions on overnight loans, has remained at its current "zero-bound level," since December, 2008.
Nearly a decade has passed since the U.S. central bank last raised its benchmark rate.
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the FOMC said in a statement.
Adopting a relatively dovish stance, Fed chair Janet Yellen said the U.S. central bank will begin monetary policy normalization when it has seen "further improvement in the labor market," and it is "reasonably confident" that inflation is moving toward its targeted goal of 2%.
Yellen also noted that large drags from falling energy and import prices should dissipate in the near future allowing long-term inflation to move back toward its long-term target. Still, the Fed downgraded its median inflation forecasts at the meeting to 0.3% for the end of 2015, while lowering inflation expectations for the end of next year to 1.7%. The Fed now expects that inflation will not reach its 2.0% target until 2018.
The Fed also lowered its median forecasts for the Fed Funds Rate for the end of the year to 0.4%, from previous estimates of 0.6%. A bevy of short-term rates such as debt for credit card holders are pegged to the benchmark. The Fed also lowered its rate forecasts for 2016 and 2017 to 1.7 and 1.9% respectively, representing a decline of 0.1% for each year.
In addition, the Fed said four of its members do not see a rate hike occurring in 2015, up from two in June. One member of the FOMC, Richmond Fed president Jeffrey Lacker, dissented, recommending a 0.25% interest rate hike at the meeting.
Yields on U.S. 2-Year Treasuries, which are sensitive to changes in the Fed Funds Rate, plunged more than 12 basis points to 0.686% at the close of trading. Bond yields on the U.S. 10-Year, meanwhile, fell 11 basis points to 2.192%. Yields are inversely related to bond prices.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell to a three-week low at 94.48, before closing at 94.56, down more than 1%. A rate hike by the Fed is expected to bolster the value of the dollar, as foreign investors look to capitalize on higher yields.
Earlier this month, officials from the International Monetary Fund and the World Bank urged the Fed to delay a rate hike, arguing that it could place undue stress on the emerging markets. A rate hike is expected to bolster the value of the dollar, as foreign investors look to capitalize on higher yields.
Since 1955, the Fed has tightened monetary policy in 12 different cycles, the last of which occurred in 2006, when it increased rates 25 basis points to 5.25%. The final rate hike capped a two-year period of gradual policy normalization when the FOMC raised the Federal Funds Rate by 25 basis points for 17 consecutive meetings, beginning in June, 2004.