Washington - US central bankers stuck to their outlook
for gradual monetary-policy tightening after they left interest rates unchanged
and showed no alarm over recent economic weakness.
Federal Reserve officials were unusually explicit in
their statement, released Wednesday following a two-day meeting in Washington,
indicating that a disappointing first quarter wouldn’t knock the committee off
its path to raise rates two more times this year after a hike in March.
“The committee views the slowing in growth during the
first quarter as likely to be transitory,” the Federal Open Market Committee
said. “Near-term risks to the economic outlook appear roughly balanced.”
The widely expected decision contained no concrete
commitment to the timing of the next rate increase. Even so, investors
increased bets on a move in June after absorbing the Fed’s sanguine assessment
of the outlook and its encouraging observations on inflation, following data
showing first-quarter economic growth of 0.7 percent and monthly price declines
in March.
“Nothing in the statement today, which was voted
unanimously by the FOMC, leads me to believe that the Fed is even close to
changing its mind on rates,” Roberto Perli, a partner at Cornerstone Macro in
Washington, wrote in a note to clients. “Base case is for a couple more rate
hikes this year - probably in June and September - and for the beginning of
balance sheet shrinkage in December.”
The Fed didn’t signal any change to its balance sheet
policy. It is discussing how to begin shrinking its $4.5 trillion in holdings,
and officials have said they hope to release a plan this year. They may start
unwinding by the end of 2017, though that hinges on economic conditions.
The jobless rate has fallen to a level officials see as
consistent with their maximum-employment mandate, and inflation is near the
Fed’s 2 percent goal, even if price gains slowed in March. A core measure that
strips out food and fuel was 1.6 percent on an annual basis, based on Commerce
Department data, and headline inflation stood at 1.8 percent.
“Inflation measured on a 12-month basis recently has been
running close to the committee’s 2 percent longer-run objective,” the Fed said.
Household spending rose “only modestly” but the fundamentals underpinning
consumption growth “remained solid.”
“The statement makes it very clear that the Fed does not
take the reported slowdown in first-quarter growth seriously,” Ian Shepherdson,
chief economist at Pantheon Macroeconomics Ltd., wrote in an email to clients.
Fed-speak friday
The decision to leave the target federal funds rate
unchanged in a range of 0.75 percent to 1 percent was unanimous and in line
with forecasts. Fed Chair Janet Yellen did not have a press conference after
this meeting. But she and at least five other Fed officials are scheduled to
speak on Friday, giving policy makers a chance to explain their decision more
fully.
Employers continued to hire at the start of 2017,
averaging 178 000 net new jobs a month in the first quarter, and signs of labour-market
tightness suggest wage growth will pick up further. The unemployment rate was
4.5 percent in March, near or below most estimates for its longer-run
sustainable level. April’s figures are due Friday from the Labour Department.
The Fed’s next meeting will take place June 13-14 in
Washington. That decision will come alongside officials’ updated quarterly
economic projections and will be followed by a press conference with Yellen.
Investors increased the likelihood of a move next month
to around 65 percent, according to pricing in federal funds futures contracts,
compared to 60 percent before the FOMC decision was announced.
“This glass-half-full statement leaves the door wide open
to a June hike, provided, of course, that the recent data letdowns are indeed
transitory,” Michael Feroli, chief US economist at JPMorgan Chase & Co,
wrote in a note to clients. “We expect this will be the case.”