The US Federal Reserve on Wednesday held interest rates steady, but indicated that moderate US economic growth and “strong job gains” would allow it to resume tightening monetary policy this year.
However, the central bank said that the US continues to face risks from an uncertain global economy even as fresh projections from policymakers showed they expected two quarter-point rate hikes by year’s end.
Asian shares gained yesterday as risk appetite revived after the Fed reduced the number of interest rate hikes expected this year, while the US dollar nursed substantial losses.
Photo: AP
“A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months,” the Fed said in a policy statement in which it kept the target range for its overnight lending rate at 0.25 percent to 0.5 percent.
“However, global economic and financial developments continue to pose risks” and will keep inflation low for the remainder of this year, it said.
Policymakers also projected weaker economic growth and lower inflation this year, and lowered their estimate of where the targeted lending rate would be in the long run to 3.3 percent from 3.5 percent — a signal that the economic recovery would remain tepid.
The interest rate outlook is a shift from the four hikes expected when the Fed raised rates in December last year for the first time in nearly a decade. The majority of policymakers said they expected it would be appropriate to raise rates by about a half a percentage point by the end of this year.
The new outlook came as the Fed attempts to steer through recent global market volatility and keep its rate hike plans somewhat intact.
The Fed had adopted a cautious approach at its last policy meeting in January, amid a selloff on financial markets, weaker oil prices and falling inflation expectations.
As in its January policy statement, the Fed did not say directly how it regards the balance of risks to the US economy.
Fed policymakers also see continued improvement in the job market, with the unemployment rate expected to decline to 4.7 percent by the end of the year and fall further next year and in 2018.
Fed policymakers marked down their forecast for inflation this year to 1.2 percent from 1.6 percent, but see it recovering to close to the central bank’s 2 percent medium-term target next year.
Kansas City Fed President Esther George was the only policymaker to dissent on Wednesday.
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