Investors breathed a sigh of relief after the Federal Reserve left interest rates unchanged at the end of its two-day policy meeting. Additionally, it indicated that only two rate hikes were likely during the course of this year. During the press conference that followed, Fed Chair Janet Yellen said the central bank was weighing contradictory economic signals to determine its course of action.

Following these events, what has emerged unambiguously is that a low interest rate environment is likely to prevail over an extended period of time. While a section of stocks will benefit from the Fed’s new outlook, others are set to lose from low interest rates. This is why it is crucial to examine the impact of these decisions on rate sensitive stocks.

Rates Unchanged, Two Hikes Likely

At the end of the Federal Open Market Committee’s meeting, the central bank said in a statement that it would keep the benchmark rate unchanged between 0.25% and 0.50%. This rate is expected to approach 0.875% at the end of this year according to the new median projection of Fed officials. This is lower than the earlier estimate of 1.375%, which indicated that four rate hikes were likely over the course of the year.

The new estimate means that only two rates hikes are likely this year. The first of these is expected to take place after the Fed meets in June. At the same time the committee refused to lay out a more specific schedule for hikes and indicated that their decisions would be dependent on prevailing economic conditions as well as the future outlook. 

Yellen Signals Cautious Outlook

During the press conference that followed, the Fed Chair underlined the cautious approach the central bank was adopting. Yellen emphasized that a weak global economy and strong job growth accompanied by lackluster wage growth were among the contradictory economic factors the central bank was considering while deciding on its next course of action.

Meanwhile, the Fed acknowledged that inflation had increased over the last few months. However, the Fed Chair said she was a little skeptical about how sustainable the price increases would be as they were driven by categories which were inherently volatile.