The Fed now expects that the USA economy will expand “at a moderate pace” and the labor market indicators will “continue to strengthen”, according to the statement.
Advertisement
As most expected, the Federal Reserve is maintaining the target range for the federal funds rate at 0.25% to 0.5%.
Its latest update omitted the line “global economic and financial developments continue to pose risks”, which was included in its March statement.
But the language of the Federal Open Market Committee’s policy statement suggested it was less concerned about the global economic and financial landscape than during the first quarter of the year, a shift that opened the door slightly wider for an increase at its next meeting. The committee reiterated that a “a range of recent indicators, including strong job gains, points to additional strengthening of the labour market”.
Just as many predicted, the Federal Open Market Committee, the group that sets the benchmark interest rate for bank lending, elected this week to hold steady and not increase federal funds rate.
“Unless there’s a robust pick up in the data for May, Fed policymakers are likely to be looking at some gloomy economic trends at the June meeting, making a rate hike hard to justify”, explained Markit’s Williamson. “Business fixed investment and net exports have been soft”.
International Monetary Fund slashed United States’ growth projection by 0.2 percentage point to 2.4 per cent in 2016 and forecast 2.5 per cent expansion in 2017, while EU’s growth was also lowered by 0.2 percentage point to 1.5 per cent in 2016 and Japan’s outlook was revised down by 0.5 percentage point to 0.5 per cent. The April statement could encourage investors to front load Fed rate hike expectations once again.
The Fed expressed confidence at the continued improvements in the labor market, but remained cautious amid low inflation in the last few months.
“I judge that a cautious and gradual approach to policy normalization is appropriate”, Dudley said, signaling a short pause for the central bank’s rate hikes.
Inflation in the U.S. has also consistently hovered beneath the Fed’s 2% long-term target as energy prices slid.
The statement is little changed from what the Fed said last month, when it stepped back from expectations that it would raise rates as many as four times this year, as the domestic economy improved and approached full employment.
Advertisement
National Association of Federal Credit Unions President and CEO Dan Berger said in response to Fed’s decision to leave rates unchanged, “The FOMC’s decision to hold off on a rate hike was widely expected, as recent readings on consumer spending and inflation have been weak”.
