“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 FOMC says in its statement.
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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 committee noted that labour market conditions have improved even as growth in economic activity has slowed.
Inflation, meanwhile, remains below the Fed’s target, partly because of low oil prices and a strong dollar, the Fed said.
The Federal Reserve voted to leave interest rates unchanged but kept their options open for a move in June. The blue-chip Dow Jones industrial average ended the day up 51 points, or 0.28%, after opening in the red. He doesn’t expect the Fed to raise rates in June and instead anticipates a rate increase during the final quarter of this year. After the meeting, the CME Group’s FedWatch saw a 22 per cent probability of a rate hike in June from 2 per cent just before the meeting. As in March, George argued for an immediate rate increase.
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 market is likely to only reprice a June [rate-hike] if data improve sharply in the next few weeks, which remains unlikely”, said Aaron Kohli, interest-rate strategist at BMO Capital Markets, in emailed comments.
While Fed chair maintains that there could be two rate hikes at best in 2016, analysts doubt such possibilities given the subdued growth outlook and softer commodity prices.
But the turmoil in financial markets and a slowdown in global economy since the start of the year have raised increasing concerns about the strength of the USA economy, forcing Fed policymakers to hold off on any further rate hikes since then.
“A range of recent indicators, including strong job gains, points to additional strengthening of the labor market”.
Although low inflation helps consumers, it can reflect a listless economy, prompt shoppers to put off purchases and give the Fed more flexibility to put off rate hikes.
While the Fed added that global economic headwinds remained on its radar, it removed a specific reference from its last policy statement to the risks they posed, a move analysts viewed as slightly more hawkish.
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The Fed’s committee unsurprisingly decided not to raise its key interest rate Wednesday.
