US Fed leaves funds rate unchanged | Business| Economy and finance news from a German perspective | DW | 03.05.2017
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Business

US Fed leaves funds rate unchanged

The American central bank has made no change in the US benchmark interest rate and downplayed recent weak economic growth - an indication it will remain on course for gradual rate hikes.

The US Fed's policy-setting Federal Open Market Committee (FOMC) on Wednesday voted to keep the federal funds lending rate in a range of 0.75 to one percent, saying in view of "realized and expectedlabor market conditions and inflation" monetary policy would remain "accommodative."

"The labor market has continued to strengthen even as growth in economic activity slowed. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid," the Fed said in a statement.

The decision was widely expected by analysts following a quarter-point interest rate hike by the US central bank in March - the second increase since President Donald Trump's election and only the third in a decade.

Now the FOMC noted that inflation was moving closer to the central bank's two percent target, and that a slowdown in US growth during the first quarter was likely to be "transitory."

With gradual adjustments in the stance of monetary policy, the US Fed said further, economic activity would expand at a moderate pace, labor market conditions would strengthen somewhat further, and inflation would stabilize around two percent over the medium term. 

How many hikes?     

In its quarterly economic projections, the central bankers still predict the federal funds rate will rise to 1.4 percent by the end of the year, which would imply another two increases, unchanged from the previous forecast.

On Wednesday, the Fed statement neither gave any indication if the central bank was poised for more rate hikes in 2017, nor that a second rate increase this year was imminent. It kept its existing language describing the risks to the outlook as roughly balanced.

In March, Fed chair Janet Yellen told reporters "if it's one more or one less, I think that still qualifies to my mind as gradual."

And she said that despite the increase, the key lending rate interest rates remain low and continue to provide stimulus to the economic recovery.

Fed's preferred inflation measure, the personal consumption expenditures price index, is expected to hold at 1.9 percent this year, and 2.0 percent in 2018, which is the Fed's target.

uhe/kd (Reuters, AFP, dpa)

 

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