The US Federal Reserve on Wednesday held interest rates steady in its first meeting since US President Donald Trump took office, but painted a relatively upbeat picture of the economy that suggested it was on track to tighten monetary policy this year.
The US central bank said job gains remained solid, inflation had increased and economic confidence was rising, although it gave no firm signal on the timing of its next rate move.
Fed policymakers are still awaiting clarity on the possible impact of Trump’s economic policies.
Photo: AP
“Measures of consumer and business sentiment have improved of late,” the Fed said in a unanimous statement following a two-day policy meeting in which it left its benchmark interest rate in a range of 0.5 percent to 0.75 percent.
The Fed also highlighted that the unemployment rate, currently at 4.7 percent, was still hovering near its recent low.
Financial markets were little changed after the rate decision, while investors were still expecting the next rate increase to occur in June, according to Fed funds futures data compiled by the CME Group.
The Fed raised rates in December for only the second time in a decade and forecast three rate increases this year.
The Fed said in its statement that it still expects inflation to rise to its 2 percent target in the medium term, but added that inflation compensation was still low and long-term inflation expectations were little changed.
However, it indicated that the effects of weak oil prices had ended, something that would give it a “clean” read on inflation in the future. On Monday, the US Department of Commerce reported an uptick in inflation to 1.7 percent.
Investors had all but ruled out a rate increase this week, given the uncertainty surrounding Trump’s fiscal and trade policies and how they would affect the Fed’s outlook.
“There is still uncertainty about fiscal policy, so the Fed is likely waiting for a bit more data and more certainty,” said Tony Bedikian, head of global markets at Citizens Bank.
Earlier on Wednesday, data showed US factory activity accelerated to more than a two-year high last month while a report by a payrolls processor showed US private employers added 246,000 jobs last month, far above analysts’ expectations.
The US Department of Labor is scheduled to release its closely watched monthly jobs report for last month today.
Fed Chair Janet Yellen might also give a clearer signal on the central bank’s thinking when she provides semi-annual testimony to US Congress in the middle of this month.
There are seven more Fed policy meetings this year, with the next one scheduled for March 14 and 15.
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