US Fed may not raise rates in September, leaked documents show

The US Federal Reserve may only raise the Fed funds rate, its main policy instrument, once this year, in the fourth quarter.

Six weeks ago, staff at the central bank told officials they were forecasting the Fed funds rate to end the year at 0.35%, according to documents which were published on the monetary authority’s website one month ago by mistake.

Normally, their projections are kept confidential for a period of five years.

The Fed decided to release the documents after the inadvertent leak came to light.

The Fed funds rate was seen ending 2016 at 1.26%, 2.12% by the end of 2017 and hitting 3.34% at the end of 2020.

Ten-year US Treasury note yields were seen reacting calmly, closing out 2015 at 2.63% and rising to only 3.41% by the finish of next year.

"Notwithstanding the above, we see the 35bp Q4 average federal funds rate as consistent with a two potential outcomes: a rate hike in September and a pause in December, or two rate hikes before year-end. The uncertainty arises because we do not have information on staff assumptions about where the funds rate will sit within the target range during the quarter. The 35bp reading is, in our view, not consistent with a December hike," said Barclays economist Michael Gapen in a research note e-mailed to clients.