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Federal Reserve leaves open timeframe for interest rate rise

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The Federal Reserve left open its timeframe for a rise in interest rates on Wednesday, following a winter slowdown that stalled US economic growth.

[WASHINGTON] The Federal Reserve left open its timeframe for a rise in interest rates on Wednesday, following a winter slowdown that stalled US economic growth.

After more than a year hinting that it would begin raising the federal funds rate in mid-2015, the Fed only said it would move when it sees further improvement in the labor market and is confident that inflation will pick up over the medium term.

But the policy-setting Federal Open Market Committee (FOMC) said, after a two-day meeting, that it believed the slowdown in the first quarter reflected "in part" transitory factors, and that the economy should resume expanding at a "moderate pace".

That suggested it still expects to begin a slow series of rate rises in the coming months, though not likely in June as many analysts had been expecting until recently.

The central bank has held its benchmark Fed funds rate at the zero level since the end of 2008, keeping monetary policy extraordinarily loose to support recovery from the Great Recession.

The prospect of higher US interest rates has stirred waves in global markets for nearly two years, sending the dollar sharply higher and sparking capital outflows from weaker economies.

In the statement following the meeting, the FOMC highlighted some of the factors that had caused the economy to slow to just a 0.2 per cent annual growth pace in the first quarter: job gains moderated, business fixed investment and household spending slowed, and exports declined.

But it also noted a strength that could underpin a rebound in the second quarter.

"Households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high," it said.

The FOMC said it expected the jobs market would continue to improve, after a poor showing in March broke a 12-month string of strong performances that added 3.4 million jobs to the economy.

It noted that although inflation remained low, it expected that prices will pick up and begin moving toward its 2.0 per cent target over the medium term.

AFP