Washington: US Federal Reserve officials left interest rates unchanged and said they still expect to raise borrowing costs at a “gradual” pace while watching to see how the global economy and markets impact the US outlook.
The Federal Open Market Committee is “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook,” the central bank said in a statement following a two-day meeting in Washington. The Fed omitted a line from the previous statement in December.
Since the Fed raised interest rates last month for the first time in almost a decade, turmoil in financial markets and a dimming of the outlook for global growth have spurred investors to expect a slower rise in borrowing costs. The median projection of policy makers’ forecasts in December called for four quarter-point rate increases in 2016; futures markets indicated ahead of the FOMC statement that traders see just one or two hikes coming.
Stocks fell immediately after the announcement, erasing earlier gains, as policy makers gave no concrete signal that additional rate increases would be delayed. The Standard & Poor’s 500 Index was little changed at 1,904.08 at 2:23 pm in New York after having been up as much 0.7 percent earlier in the day.
US Fed Chair Janet Yellen (pictured) and her Fed colleagues, explaining their unanimous decision to leave the target range for their benchmark federal funds rate at 0.25 percent to 0.5 percent, said that information “suggests that labour market conditions improved further even as economic growth slowed late last year.”
Reiterating the interest-rate outlook from the December statement, the FOMC said that it “expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
Household spending and business fixed investment have been growing at “moderate rates in recent months,” the FOMC said, after labeling such gains “solid” in the December statement.
The Fed stuck to its projection that the pace of price gains will rise to 2 percent over the medium term but stated that inflation “is expected to remain low in the near term, in part because of the further declines in energy prices.”
Market-based measures of inflation expectations have “declined further,” while survey-based measures were “little changed” in recent months, the FOMC said.
Yellen won’t hold a post-meeting press conference and isn’t scheduled to speak publicly until she appears before the House Financial Services Committee on February 10 to deliver the Fed’s semi-annual monetary policy report to Congress.
Since the FOMC met on December 15-16, the US labour market showed more of the improvement that encouraged the Fed to raise interest rates. Employers added 292,000 new jobs in December, bringing the 2015 total to 2.65 million. Wages also showed tentative signs of accelerating, providing good news for a Fed hoping to see inflation move closer to its 2 percent target this year.
Bloomberg
