The US Federal Reserve on Wednesday kept interest rates unchanged, but said inflation likely would rise this year, bolstering expectations borrowing costs would continue to climb under incoming central bank boss Jerome Powell.
Citing solid gains in employment, household spending and capital investment, the Fed said it expected the economy to expand at a moderate pace and the labor market to remain strong this year.
“Inflation on a 12-month basis is expected to move up this year and to stabilize” around the Fed’s 2 percent target over the medium term, the central bank said in a statement following a two-day policy meeting, the last under Fed Chair Janet Yellen.
It also said its interest rate setting committee had unanimously selected Powell to succeed Yellen, effective tomorrow. He will be sworn in on Monday
Powell, a Fed governor who has worked closely with Yellen, was nominated by US President Donald Trump and confirmed by the US Senate.
Powell is expected to hew closely to the policies embraced by Yellen, who spearheaded the gradual move away from the near-zero interest rates adopted to nurse the economy back to health and spur job growth after the 2007 to 2009 recession.
Fed policymakers have been encouraged in recent months as the economy picked up speed and the unemployment rate fell to a 17-year low of 4.1 percent.
The Fed, which raised rates three times last year and in December forecast three more hikes for this year, on Wednesday said it expected “further gradual” rate increases would be warranted.
The current target range for the federal funds rate is 1.25 percent to 1.5 percent.
US stocks rose slightly after the Fed statement before paring gains. Short-term interest rate futures showed traders adding slightly to bets the Fed would raise rates three times this year, starting at its meeting next month.
Market-based measures of inflation have increased in recent months, the bank said.
The statement did not address the likely impact of the Trump administration’s tax overhaul on economic growth and gave no hint of concern about overshooting on inflation.
Several Fed policymakers have said they expected the tax changes, which include an estimated US$1.5 trillion in corporate and individual tax cuts, to provide an economic lift by boosting business and household spending.
The economy grew 2.3 percent last year.
There were no dissents in the Fed’s decision on Wednesday.
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