“They are obviously volatile … they only need to stabilize at a higher level”, she said.
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“I’m somewhat surprised we’re not seeing more of a pickup in wage growth”, Yellen acknowledged. The Fed also dimmed its economic growth outlook for the year to 2.2%, compared with 2.4% previously.
But inflation has been stuck below the Fed’s target for almost four years.
Inflation has picked up in the past couple of months.
Yellen noted that these inflation moves may be transitory.
All those figures are below their estimate of the long-term unemployment rate consistent with a normal economy, which is 4.8 percent. That could force employers to offer higher pay and accelerate growth.
In keeping its key overnight interest rate unchanged in the current range of 0.25 percent to 0.50 percent, the Fed balanced what it described as “strong job gains” against the fact that “global economic and financial developments continue to pose risks”.
As of now, however, the Fed does expect interest rate increases later in 2016, as inflation is expected to grow and employment numbers continue to improve. There were no dissents in December when the Fed hiked rates.
China’s central bank cut the main interest rate to a record low in six successive reductions through October, and recently made another reduction to the required-reserve ratio for major banks. The Fed will likely pave the way to raise rates in June but leave the option open to raise rates in April, he said. Yields on U.S. Treasuries dropped across the board, while stock markets rallied. The market has risen for each of the last four weeks on mounting evidence that the USA economy remains in good shape overall despite the shaky state of other major economies. Builders broke ground on more houses and apartments. It said prices were being kept low by the “transitory effects” of lower prices for energy and imports, which are cheaper because of a strong dollar. That trend continued Wednesday as the Labor Department said core inflation, or inflation that leaves out energy and food prices, continued to rise.
The Dow Jones Industrial Average added 0.4 per cent at the closing bell. The Standard & Poor’s 500 index and Nasdaq composite index were both flat.
The Fed’s latest policy statement, due to be released at 2 p.m. EDT (1800 GMT) along with updated economic projections, will show how comfortable policymakers are in proceeding with the gradual rate hike path they embraced late a year ago.
USA stocks and oil prices reacted positively to the news with the Dow, S&P and Nasdaq gaining 0.16 percent, 0.12 percent and 0.21 percent, respectively. Futures do not always foretell what markets will do.
The US dollar fell sharply against a basket of currencies after the statement.
But some analysts argued that the Fed is being too cautious, and say it will have to change its tone in coming meetings.
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While Wall Street expects the Fed to keep rates unchanged, they will be closely looking for clues as to the timing of the Fed’s next rate increase. Lower rates also make stocks look more attractive to investors. Newmont Mining rose $1.18, or 4.5 percent, to $27.55 and Alcoa added 58 cents, or 6.3 percent, to $9.74.
