Janet yellenAP ImagesWhat does Janet Yellen have in store for the markets?

The Federal Reserve is still on hold but expects to raise interest rates at some point this year.

The Fed’s latest policy statement used much of the same language as previous statements, making clear that it will raise interest rates when it’s confident inflation will move back to its target.

But along with Wednesday’s statement, the Fed also released its latest economic projections and its “dot plot,” which shows where FOMC members expect interest rates to be at the end of this year.

The dots imply that there will be 2 interest rate hikes this year, and 15 of 17 FOMC members expect that the first rate hikes will come this year.

As for the economy and inflation, the Fed’s inflation outlook remained unchanged for 2015, with the Fed expecting that “core” inflation will be 1.3%-1.4% at the end of the year while the Fed’s assessment of growth was trimmed to 1.8%-2.0% from 2.3%-2.7% in March.

The Fed, however, raised its unemployment expectations to 5.2%-5.3% from 50.%-5.2%, implying that the Fed believes the economy will reach “full employment” at a higher unemployment rate than previously expected.

Here’s the full statement from the Fed:

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labour market indicators suggests that underutilization of labour resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilised. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labour market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 per cent over the medium term as the labour market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 per cent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realised and expected–toward its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 per cent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

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