“Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports”, the Fed said Wednesday. Some members of the Fed’s Open Markets Committee may disagree – vice chair Stanley Fischer has had moments of hawkishness and Kansas City Fed President Esther George wanted to raise rates another 25 basis points on Wednesday – but the majority appears to think a hike isn’t necessary.
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The post meeting statement noted that economic activity “appears to have slowed” during the intermeeting period, even as labor market conditions improved further.
The U.S. Federal Reserve on Wednesday kept its benchmark short-term interest rate unchanged for a third meeting in a row while offering little clue on the timing of its next rate hike.
The next policy meeting will be on June 14-15. Market men see an even higher 34.3 per cent probability of a July rate hike.
Concerns have been rising about the world economy, and any major worldwide slump would, in turn, hinder USA growth. Still, with the inclusion of language the central bank will continue to monitor domestic data and global developments, Stith said the central bank is keeping its cards close to its chest, not signaling whether a June rate hike is either on or off the table.
Market reaction to the Fed’s statement was muted as the decision to hold rates was widely expected, though United States stocks climbed into positive territory and the dollar was slightly higher versus the pound and euro.
It’s worth remembering that there are two reasons why any central bank raises rates: Because it can, and because it has to. Oil prices have rallied, with the Brent benchmark crude up 20 percent since the Fed’s December rate hike. In December, the Fed estimated it would raise rates four times in 2016.
“Whether the Fed follows through will depend on what happens in financial markets over the next six weeks”, Ashworth said.
The Commerce Department is expected today to estimate that the US economy grew at a tepid annual rate under 1 percent in the January-March quarter.
Since then, financial-market volatility has subsided and US economic data have shown improvement.
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But as the decision raised the chance of a June move, the yield on the 10-year US Treasury bond fell to 1.87% from 1.89%. It also left unchanged a 0.1 percent negative interest rate it applies to some of the excess reserves that financial institutions park at the BOJ.
