“There are some changes in the statement to reflect the evolution of the data especially in their inflation outlook”, said Stephen Stanley, chief economist at Amherst Pierpont Securities in Stamford, Connecticut.
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In March, the Fed said that inflation excluding food and energy had “continued to run below 2 percent” on a 12-month basis.
The Fed’s view is that economic activity has been rising at a moderate rate and that it sees economic activity expanding at a moderate pace in the medium term. It highlighted firm corporate investment figures, while acknowledging that household spending growth had slowed recently.
The dollar has been buoyed in recent weeks by the strong USA economic outlook and rising Treasury yields.
World stocks traded flat Thursday as worries over global trade tensions weighed, while the US dollar consolidated recent bumper gains after the Federal Reserve reaffirmed the outlook for more rate hikes.
As expected, the US Federal Reserve held interest rates unchanged (1.5% – 1.75%) following the two-day policy meeting that ended yesterday.
Stocks, which initially gained after the Fed statement, reversed course as potential U.S. restrictions on Chinese telecommunications companies reinforced investor concerns about trade relations between the United States and China. The yield on 10-year Treasuries fell and the greenback pulled back from its highest since January.
This statement is a far cry from concerns that the recent tax reform would generate higher inflation and force the Fed’s hand in the pace and scale of interest rate hikes. Back in the USA, the Federal Reserve now forecasts two more rate hikes this year, while an increasing number of policymakers see three as possible.
Inflation now stands at 2.4pc, while unemployment is at its lowest since the early 2000s at 4.1pc.
The U.S. economy added fewer jobs than expected and although the unemployment rate dropped to near a 17-1/2-year low of 3.9 percent, this was because some jobless Americans left the labour force.
With the Fed’s meeting out of the way, focus is shifting to U.S.jobs data due on Friday for further indications of the strength of the economy and inflation pressures. For those expecting a hawkish Fed, the statement disappointed and thus moderated expectations for any aggressive turn in the interest rate cycle. The recent jump in the cost of a barrel of oil is also adding heat to price growth. Growth in US service industries cooled in April to a four-month low and hiring eased, adding to signs the economy is off to a softer start this quarter, an Institute for Supply Management survey showed Thursday.
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On the other hand, rising trade tension between the United States and its partners are clouding the picture for central bankers. Likewise, the Japanese economy had enjoyed eight straight quarters of expansion, the longest such run since the 1980s. The ISM index of USA factory activity slowed for a second straight month in April, according to figures this week.
