Fed keeps rate unchanged; calls US growth 'moderate'

[WASHINGTON] The Federal Reserve left its benchmark interest rate unchanged at near zero on Wednesday, while describing US economic growth as "moderate" after the winter slowdown.

But predictions made by the individual participants in the Fed's monetary policy meeting indicated most expect the federal funds rate to rise above 0.5 per cent by year-end.

The Federal Open Market Committee trimmed its economic growth forecast for 2015 to just 1.8-2.0 per cent, down from March's 2.3-2.7 per cent outlook, to account for the unexpected contraction in the first quarter of the year.

But the FOMC suggested it expected the economy to continue to strengthen slowly, with growth picking up to a 2.4-2.7 per cent pace next year and the unemployment rate - a key referent for monetary policy - slipping from the current 5.5 per cent to as low as 5.2 per cent at the end of this year and 4.9 per cent in 2016.

Economic data since April, the FOMC said in its policy statement, "suggests that economic activity has been expanding moderately after having changed little during the first quarter." It said that while the jobless rate has not moved much, job creation has picked up and that, and other indicators, suggest falling slack in the employment market.

As for the other key base for policy, inflation, the FOMC said that the very low level of price gains is related to the crash in oil and import prices, both "transitory" effects that should disappear, allowing prices to rise toward its target rate of about 2.0 per cent.

"The Committee continues to monitor inflation developments closely," it said.

AFP