Share

Fed keeps rates on hold, says US growth slowdown temporary

Washington - Federal Reserve officials remained on track to gradually tighten monetary policy after leaving interest rates unchanged and signaling they were not alarmed by recent US economic weakness.

“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Federal Open Market Committee said in a statement on Wednesday following a two-day meeting in Washington. “Near-term risks to the economic outlook appear roughly balanced.”

US central bankers were unusually explicit in their statement, indicating that a disappointing first quarter, in which the economy grew at an annualised rate of 0.7%, would not knock the committee off its plan to raise rates two more times this year after a hike in March.

“They wanted to send the message,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “One quarter of unimpressive growth and one month of weak inflation data is not going to cause them to alter an emerging timeline of a rate hike in June and September with the beginning of balance sheet normalisation in December.”

The Fed didn’t signal any change to its balance sheet policy. It is discussing how to begin shrinking its $4.5 trillion in holdings, and officials have said they hope to release a plan this year. They may start unwinding by the end of 2017, though that hinges on economic conditions.

The jobless rate has fallen to a level officials see as consistent with their maximum-employment mandate, and inflation is closing in on the Fed’s 2% goal. A core measure that strips out food and fuel fell to 1.6%, based on Commerce Department data, but headline price gains stood at 1.8% in March.

“Inflation measured on a 12-month basis recently has been running close to the committee’s 2% longer-run objective,” the Fed said. Household spending rose “only modestly” but the fundamentals underpinning consumption growth “remained solid”.

“The statement makes it very clear that the Fed does not take the reported slowdown in first-quarter growth seriously,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in an email to clients.

Fed-speak Friday

The decision to leave the target federal funds rate unchanged in a range of 0.75% to 1% was unanimous and widely expected by investors. Fed Chair Janet Yellen did not have a press conference after this meeting. But she and at least five other Fed officials are scheduled to speak on Friday, giving policy makers a chance to explain their decision more fully.

Employers continued to hire at the start of 2017, averaging 178 000 net new jobs a month in the first quarter, and wage growth has begun to move up, suggesting tightness in the labour market. The unemployment rate was 4.5% in March, near or below most estimates for its longer-run sustainable low.

The Fed’s next meeting will take place June 13-14 in Washington. That decision will come alongside officials’ updated quarterly economic projections and will be followed by a press conference with Yellen.

Read Fin24's top stories trending on Twitter:


We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.0%
Rand - Pound
23.91
-0.0%
Rand - Euro
20.41
+0.1%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
-0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders