Fed keeps key rate unchanged, noting slower US growth

[WASHINGTON] The Federal Reserve kept its benchmark interest rate unchanged Wednesday citing slower growth in the US economy even as the labor market strengthens.

The Fed stuck to its stance that US monetary policy will tighten only gradually and gave no hint as to whether it could lift the short-term federal funds rate at its next meeting in June.

But the language of its policy statement at the end of a two-day meeting suggested it was slightly less concerned about the global economic and financial landscape than during the first quarter of the year.

Instead, it suggested that domestic growth - generally thought to have slowed to about a 0.9 per cent annual pace in the first quarter - and still-weak inflation were its primary concerns.

Since the March meeting, the Federal Open Market Committee said, "labor market conditions have improved further even as growth in economic activity appears to have slowed."

"Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high."

It noted that business investment and exports have been soft, and that inflation remains well below its 2.0 per cent target rate due not only to the plunge in energy prices but also to cheaper imports of other goods.

The decision to keep the benchmark rate, which influences global dollar interest rates, at an ultra-low 0.25-0.50 per cent was expected.

But many analysts were looking for something that would indicate whether the FOMC might raise rates at its June 14-15 meeting, or whether it would remain more concerned about financial market turmoil and possibly the June 23 vote in Britain on Brexit, Britain breaking from the European Union, which many fear could disrupt markets.

The FOMC though downplayed global issues relative to its March view, simply saying that it would continue "to closely monitor inflation indicators and global economic and financial developments."

Of the 10 voting members of the FOMC, only one dissented in the vote on the policy decision. Esther George, head of the Fed's Kansas City branch, argued for raising the rate now to 0.50-0.75 per cent.

AFP