The U.S. Federal Reserve kept
interest rates unchanged on Wednesday and downplayed weak first-quarter
economic growth while emphasizing the strength of the labor market, in a sign
it was still on track for two more rate rises this year.
In a bullish statement following
the end of a two-day policy meeting, the central bank also said consumer
spending continued to be solid, business investment had firmed and inflation
has been "running close" to the Fed's target.
"The committee views the
slowing in growth during the first quarter as likely to be transitory,"
the Fed said in a unanimous statement.
The labor market continued to
strengthen even as growth in economic activity slowed and "the
fundamentals underpinning the continued growth of consumption remained
solid," policymakers added.
The Fed raised its benchmark rate
by a quarter percentage point at its last meeting in March to a target range of
0.75 percent to 1 percent.
Before this week's meeting most
Fed policymakers had made it clear that in contrast to previous years the
central bank feels more confident in its forecast of two more rate increases in
2017.
Wednesday's affirmation from the
Fed that it was optimistic on economic growth and that its rate rise plans
remained intact bolstered the dollar against the euro and yen and pushed
Treasury yields slightly higher.
"They went out of their way
to emphasize this is not something they see persisting and pretty much says to
me that their two rate hikes are still on the table for the balance of the
year," said Heidi Learner, chief economist at Savills Studley.
NORMALIZING RATES
The Fed is in its first
tightening cycle in more than a decade after it spent years keeping rates near
zero to nurse the economy back to health following the 2007-2009 recession.
Policymakers have been buoyed by
recent economic data that showed a surge in business investment and the fastest
wage growth in a decade. The unemployment rate also fell in March to near a
10-year low.
However, some officials had also
said they wanted more data in hand before taking additional steps to normalize
rates. Gross domestic product grew at a sluggish 0.7 percent annual pace in the
first quarter as consumer spending almost stalled. Job growth also slowed
sharply in March.
Economists have largely
attributed the weak first-quarter GDP reading to recurring issues with the
calculation of growth during the January-March period and linked the pullback
in hiring to weather.
Policymakers are awaiting clarity
on the size and scope of the tax cuts, infrastructure spending and regulatory
changes that the Trump administration will be able to push through Congress. A
stimulus package could speed up the pace of rate hikes.
Inflation had been edging higher,
but the so-called core PCE price index increased 1.6 percent in the 12 months
through March, the smallest gain since last July. Core PCE is the Fed's
preferred inflation measure and is below its target.
The Fed in its statement showed
little concern about a softening in inflation, characterizing it as
"running close to the committee's 2 percent longer-run objective."
The rate-setting committee is
also gearing up to announce sometime this year when and how the Fed will begin
shrinking its $4.5 trillion balance sheet. Wednesday's statement offered no new
details.