Fed holds USA rates steady, maintains gradual hike option

Andrew Cummings
May 5, 2017

The Fed raised rates by a quarter point in March and said it expected two more increases in 2017.

The Fed statement said while household spending has risen only modestly "the fundamentals underpinning the continued growth of consumption remained solid".

While it gave no explicit direction, the committee pointed to a resilient jobs market - with unemployment running at 4.5% and pay growth rising - coupled with inflation "running close" to its 2% target, as evidence the economy remained strong despite weaker-than-expected first quarter growth.

The decision to leave the target federal funds rate unchanged in a range of 0.75 per cent to 1 per cent was unanimous and widely expected by investors.

The U.S. Federal Reserve declined to raise its interest rates following the close of its two-day meeting, although analysts expect that June will see an interest rate hike, while gold prices fell as the U.S. dollar held fast. While the Fed didn't foreshadow a June hike in its policy statement released Wednesday, it did express confidence in the underlying strength of the economy and saw some disappointing recent economic results as only "transitory".


Investors are awaiting Friday's monthly USA non-farm payrolls report for greater signs of the Fed's likely rate hike trajectory through the end of the year.

South Africa's rand weakened against the dollar in early trade on Thursday as the greenback rallied on the back of the hawkish U.S. Federal Reserve statement, pushing emerging market currencies lower.

Fed policymakers said Wednesday that the labor market has "continued to strengthen" and indicated it viewed March's lackluster job growth as an anomaly.

Last Friday, the U.S. GDP report showed the economy grew at a weak 0.7 percent.

According to Robert Denk, Assistant Vice President for Forecasting and Analysis at the National Association of Home Builders, March was a "bad month", economically speaking, but April could be promising-and the FOMC was right to bank on that.


The jobless rate has fallen to a level officials see as consistent with their maximum-employment mandate, and inflation is closing in on the Fed's 2 per cent goal.

The latest statement offered no more leads on when the Fed might announce when and it will begin shrinking its $US4.5 trillion balance sheet.

Some Fed officials have suggested that they would prefer not to be raising the short-term rate at the same time that they are beginning to reduce their balance sheet.

Inflation figures released Monday showed the Fed's preferred measure of inflation - known as PCE - actually retreated and remains below two percent, while a key component of the index declined for the first time in 16 years.


Other reports by iNewsToday

FOLLOW OUR NEWSPAPER