The strong conviction about growth, inflation and global stability needed to raise interest rates didn’t show up for officials at the Federal Open Market Committee meeting this week.
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As it has in its past two releases, the Fed did not include in its statement an assessment of the risks facing the us economy. Some forecasters think growth might have been as weak as 0.3 percent, which would mean the economy almost stalled out last quarter.
“The committee continues to closely monitor inflation indicators and global economic and financial developments”, the Fed said following a two-day meeting. The statement warned that “growth in economic activity appears to have slowed” and that “g$3 rowth in household spending has moderated”.
Brazil’s central bank also left interest rates unchanged late on Wednesday, leaving its benchmark Selic rate BRCBMP at 14.25 percent for the sixth straight meeting in its fight against high inflation in what could be the current board’s last decision ahead of that country’s likely change of government.
The Fed downplayed the risks posed by “global economic and financial developments” to the United States economy, though it said it would “closely monitor” these.
Kansas City Fed President Esther George dissented from the central bank’s decision, arguing in favor of a small increase in the target rate.
Stocks were slightly higher, with the S&P 500 up 0.2%.
As of 2:22 p.m. EST, gold prices were up 0.35 percent for the day to $1,246.49 per ounce.
Indeed, the central bank dropped the reference to “global risks,” but maintained that it will continue to take “financial and worldwide developments” in account before it decides to raise rates again.
“In short, the more positive tone than in March is consistent with officials tightening again as soon as the June meeting, but only if the data and markets are supportive”, O’Sullivan said after the announcement.
“There is no smoking gun in the April statement to suggest that the Fed will hike rates in June”, Gennadiy Goldberg, a New York-based interest-rate strategist for TD Securities (USA), one of the 23 primary dealers that trade with the Fed, told Bloomberg. But now that the Fed only has one rate hike under its belt, the Fed will be unable to lower rates and make a meaningful economic difference should conditions start to turn south. And in March, the Fed revised its expectations to possibly just two rate hikes this year. Shares of Apple posted the largest percentage decline in the Dow, trading 6.2 percent lower as of 3.24pm in NY.
But she has always maintained that the Fed should consider new information as it becomes available, and stressed that the Fed could raise rates at any of its future meetings. Moreover, Fed chair Janet Yellen has highlighted that risks are on the downside to the USA economy in her recent speech. It added that it remained confident inflation would rise to its 2 per cent target over the medium term. In January, in a desperate bid to raise inflation, Japan’s central bank introduced negative rates.
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The FOMC cited a range of recent indicators, including strong job gains, which it said, pointed to additional strengthening of the labor market.
