The US Federal Reserve on Tuesday provided few clues on the prospects for further monetary easing, offering just a slight upgrade to its economic outlook while restating concerns about the high level of unemployment.
The central bank said it expects “moderate” growth over coming quarters with the unemployment rate declining gradually; in January, it said it expected “modest” growth.
It also said a recent spike in energy costs would likely push up inflation, but only temporarily. Over a longer stretch, the Fed said inflation would likely run at or below its 2 percent target.
“Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated,” the central bank said in a statement after a one-day meeting.
US stocks held gains after the statement and moved higher on news JPMorgan Chase would increase its dividend.
The US dollar, meanwhile, hit a fresh 11-month high against the yen, and prices for US government bonds slipped as traders trimmed bets on further bond-buying, or quantitative easing, from the Fed.
In a further nod to a somewhat brighter outlook, policymakers said financial market strains from the European sovereign debt crisis had eased, although they continued to pose “significant” risks. The policymakers also characterized business investment as rising; in January, they noted it had slowed.
As widely expected, the Fed reiterated its expectation that overnight interest rates would remain near zero until at least through late 2014 and that it would continue its program to reweight its portfolio toward longer-term securities.
That program, known as “Operation Twist,” expires at the end of June.
Richmond Federal Reserve Bank President Jeffrey Lacker dissented against the decision because he did not expect economic conditions to warrant ultra-low rates until late 2014. In January, he had dissented against the decision to offer a time frame for the first expected rate hike.
A quickening in the pace of US jobs growth and a sharp drop in the unemployment rate to 8.3 percent from 9.1 percent in August has led some analysts to rein in their expectations for a further easing of monetary policy.
A report on Tuesday showed retail sales posted their largest gain in five months last month, the latest data to suggest the economic recovery is on a more solid footing.
Even so, Fed officials are uncertain whether the progress in reducing unemployment can be maintained given still-sluggish economic growth, and many economists believe the central bank will launch another round of bond buying later in the year.
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