Congressional Budget Wonks to Fed: You Probably Aren't Going to Raise Rates as Fast as You Say

CBO doesn't see Fed rate increase next month, projects slower pace thereafter

Not even the U.S. Congressional Budget Office is buying the Federal Reserve's projected path for interest rates in coming years, starting with some central bankers' insistence that a hike next month is possible.

In the latest update of its budget and economic outlook released on Tuesday, the CBO said it expects the central bank to hold its target for the federal funds rate at 0.25 to 0.5 percent until the fourth quarter of this year before raising it.

That contrasts with recent comments by San Francisco Federal Reserve Bank President John Williams and other policy makers holding open the possibility of an increase next month. A hike is "in play" in September, Williams told reporters on Aug. 18 after a speech in Anchorage, Alaska.

The non-partisan CBO, which provides budget and economic analyses to Congress, also sees a slower increase in rates over 2017 and 2018 than central bankers did in their last projections in June. (Fed policy makers will update their forecasts at their next meeting on Sept. 20-21.)

The latest CBO estimates represent a marked reduction from its forecast in  January, when it saw the funds rate reaching 3.2  percent at the end of 2018, compared with its 1.8 percent estimate now.

The budget office said its lower rate forecasts reflect slower-than-previously-expected economic growth and ongoing uncertainty in the wake of the U.K.'s vote to leave the European Union.

The budget analysts' rate projections are still higher than those implied by trading in the federal funds futures market. Participants in that market are betting that the funds rate will stay below 1 percent through the end of 2018.




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