The Fed’s caution underscores how policy makers still lack confidence they can move away from extraordinary easy- money policies without undermining the fragile USA expansion and knocking the global economy off balance. Household spending is a moderate pace although real income has increased and consumer sentiment remains elevated.
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Fed’s recent forecasts show most officials expect to raise rates twice this year, perhaps following their meetings in June and December. Some economists think it may not be until the second half of the year before the Fed raises rates again, in part to avoid departing too far from the policies of the Bank of Japan and the European Central Bank.
As was widely expected, the Federal Open Market Committee (FOMC) did not change policy at its April meeting. In March, it expressed concern these were areas of risk. In Wednesday’s statement, it no longer mentioned such risks, though it said it would “closely monitor” global economic and financial developments. The statement overall is still a modest United States dollars positive to the extent the FOMC is less concerned with risks from overseas, leaving the door open to the June hike we expect. But they didn’t send any message about when the next increase could come.
The FOMC cited a range of recent indicators, including strong job gains, which it said, pointed to additional strengthening of the labor market.
“The statement really confirmed and validated the lower-for-longer, Fed-on-hold scenario”, said Subadra Rajappa, head of US rates strategy in NY at Societe Generale SA, one of 23 primary dealers that trade directly with the Fed. Wednesday’s policy statement prompted strategists at banks including BNY Mellon, Toronto Dominion Bank and UBS Securities LLC to suggest the Fed may hold off on raising rates until September.
But the USA economic expansion has weakened.
The Federal Reserve isn’t budging for now.
Inflation has fallen off as well.
GDPNow, the Atlanta Fed’s measure of economic growth, estimated first-quarter expansion at an annual rate of 0.6 per cent as of Wednesday. However, on the downside, the committee noted that inflation is still running below the 2 percent long-run objective. The data will be released on Thursday. “But they don’t want it to be a 100 percent (certainty) either”, said Don Ellenberger, a senior portfolio manager with Federated Investors in Pittsburgh.
The Fed statement largely overshadowed a report from the National Association of Realtors showing that pending home sales rose to their highest level in nearly a year in March.
Ms. Yellen will have a chance to update her assessment on May 27, when she is scheduled to speak publicly at an event in Cambridge, Mass. The FOMC has kept the fed funds target range steady since it was lifted to 0.25% and 0.5% in December.
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What’s more, US inflation is running well below the Fed’s optimal level of 2 percent.
