It noted that business investment and exports have been soft, and that inflation remains well below its 2.0% target rate due not only to the plunge in energy prices but also to cheaper imports of other goods.
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In March the FOMC said global economic and financial developments “pose risks”.
“Labor market conditions have improved further even as growth in economic activity appears to have slowed”, the Federal Open Market Committee said.
Fed Chair Janet Yellen said last month that it’s appropriate for the central bank to “proceed cautiously” in adjusting policy, citing the risks to the USA economic outlook from global developments.
In its statement issued after its meeting yesterday, the Fed left interest rates unchanged yesterday, but kept the door open to a hike in June while showing little sign it was in a hurry to tighten. That gives the Fed more leeway to wait longer to raise rates. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”.
Over the past couple of months, nonvoting members of the Fed including Atlanta Fed president Dennis Lockhart, Philadelphia Fed president Patrick Harker and San Francisco Fed president John Williams have expressed support in hiking interest rates soon. The addition of a positive to offset any negatives is clearly not a coincidence but it does suggest that while June remains on the table for the next hike, the Fed is not confident at this stage that the timing is right. Of course, it’s understandable that they would want to avoid financial markets turbulence, the kind of which we saw at the start of the year, but what is happening at the moment seems to be a coordinated effort to prioritise this.
But the central bank has avoided stating explicitly whether these risks were balanced or tilted to one side in the policy statements for the past three consecutive meetings, leaving investors unclear when it will raise interest rates.
Bethune foresees just one more rate hike this year, in September.
“The language of the statement signaled that the probability of a rate hike at the June meeting is stronger now than it was at the March meeting”.
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The US had raised interest rates in December, but had been holding off since then because of fears about the fragile global economy. The government’s first estimate of US first-quarter GDP growth comes Thursday, with many economists expecting the reading to come in below 1 percent.
