Federal Reserve leaves key US rate unchanged amid mixed economic signals

[WASHINGTON] The US Federal Reserve decided Wednesday to keep its benchmark interest rate unchanged amid mixed signals about the direction of the US economy.

While the central bank noted the continued "strong labour market" and "solid" gains in economic activity, it also highlighted a slowdown in investment by businesses and households and inflation, which has fallen below the Fed's target.

After raising the key lending rate four times last year, the Fed voted unanimously to keep it in a range of 2.25-2.5 per cent.

Conflicting economic data has complicated the Fed's decision-making, while repeated attacks by President Donald Trump have left the institution open to concerns it might bow to political pressure.

Fed Chair Jerome Powell - whom Mr Trump appointed - will have the opportunity to explain the rationale more fully at a press conference set for 2.00pm (1800 GMT).

Analysts meanwhile will scrutinize the statement by the rate-setting Federal Open Market Committee, and will find just a few key changes of language.

Data since the March policy meeting show "the labour market remains strong and that economic activity rose at a solid rate," the statement said, somewhat more optimistic than the prior statement that noted slowing activity.

But the FOMC also noted growth in household spending and business fixed investment "slowed in the first quarter," and that key inflation measures "have declined and are running below 2 per cent," the Fed's target.

There also was one policy shift: a small reduction on interest paid to banks on cash reserves to 2.35 per cent from 2.4 per cent.

Some economists predicted that move, saying the actual federal funds rate had been drifting up to the higher end of the desired range.

That change is "intended to foster trading in the federal funds market well within the FOMC's target range."

In the first two meetings of the year, central bankers had made it clear they planned to hold off on any further moves until there were clear signs of the direction of the economy.

The Fed's mandate is full employment and stable prices, but central bankers have been baffled that wages and prices have shown few signs of taking off, even with unemployment at historic lows, companies nationwide complaining about struggles to find workers, and solid GDP growth of 3.2 per cent in the first three months of 2019.

Many economists point out the weakness underlying the strong GDP data, and say the last rate hike in December was a mistake, but even so near-record stock markets make it harder for the Fed to cut.

AFP