There was a 9-1 vote for this policy action as Kansas City President George dissented for the second successive meeting and called for an immediate increase in rates to 0.50-0.75%.
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As for future rate increases, the FOMC noted that they will take into account measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments and continue to monitor inflation changes.
The dollar held steady on Wednesday (Apr 27) after the Federal Reserve said it was leaving short-term interest rates unchanged and cracked open the door to a rate hike in June.
As expected, the Fed held steady on interest rates after a two-day meeting of its policymaking committee, noting that domestic economic growth had slowed.
In a 9-1 vote, the Federal Open Market Committee (FOMC) chose to wait until the Fed’s next meeting in June before making a decision on a rate hike.
Market reaction to the Fed’s statement was muted as the decision to hold rates was widely expected, though U.S. stocks climbed into positive territory and the dollar was slightly higher versus the pound and euro.
Global financial turmoil and economic slowdown were regarded as risks in the Fed’s statement in March.
How could the April Fed’s statement affect the gold market? Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
The Fed may also acknowledge the recent improved market indicators by dropping or softening its March warning that global economic and financial developments “continue to pose risks”.
Other major central banks have been grappling with ways to deal with lackluster economies, including the adoption of negative interest rates.
The committee noted that labour market conditions have improved even as growth in economic activity has slowed.
Chris Williamson, chief economist at financial information service Markit, said: “The Fed’s issue is finding the right window to hike rates, and telegraphing that intention early enough to not unsettle the markets”.
The Fed’s formulation about risks read much like the policy statement it released in January.
Fed officials will no doubt be encouraged by the favorable market reactions to this slightly more hawkish statement.
Reports like Thursday’s GDP data, though, make it less likely this year’s overall growth will match that rate, according to Gregory Daco, head of US macroeconomics at Oxford Economics.
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The policymakers also appeared more positive on the U.S. economy. But if they see inflation heating up, they can raise rates to discourage borrowing, and that in turn can restrain wage and price increases.
