Federal Reserve keeps rates unchanged

The Fed’s statement recognized a slowing of USA economic growth that encompasses inventory spending and exports.

In the first monetary policy meeting after its historic rate increase in December, the USA central bank showed slightly less confidence than a month ago about the trajectory of inflation and growth even as it noted strengthening in the jobs and housing sectors.

Well, they fear that the curve may well lose a lot of its predictive power in an environment where short rates are still extremely low.

But Yellen and her fellow policymakers also mounted a staunch defence of their decision to raise USA interest rates last month, and repeated their belief that the United States economy would recover sufficiently to warrant further “gradual” interest rate hikes.

“The Fed has the luxury of waiting to see what happens”, economists at Cornerstone Macro wrote in a note to clients last week, saying the central bank’s challenge will be to balance financial market concerns with “the encouraging news on both the employment and inflation fronts”.

The Australian dollar rose against the dollar, up 0.4% to 70.36 USA cents, as the country reported a 0.4% rise in consumer prices for the fourth quarter. “They want to see if everything in the global economy and financial markets is really going to bleed through and affect inflation and their outlook for the economy”.

The Fed’s statement was approved by a vote of 10-0.

“As expected, the FOMC decided there would be no change in the federal funds target rate”, said National Association of Federal Credit Unions Chief Economist Curt Long.

The Dow Jones industrial average dropped about 170 points shortly after the Fed released its statement.

Apple and Boeing’s disappointing forecasts helped drag down USA stock indexes.

The Federal Reserve ended Wednesday’s FOMC meeting with interest rates unchanged but with hints that a March hike may be imminent.

The Fed’s acknowledgement of risks to the domestic economy, with oil prices hitting 12-year lows and jitters about Chinese growth, revived some safe-haven bids for gold and U.S. Treasury debt prices. However, the Fed anticipates that raising rates slowly would strengthen the labor market and support the economy.

“It (the Fed) did not materially downgrade its economic assessment but did mention a slowdown in growth and was less optimistic on the chances of inflation returning to target”, Mizuho strategist Peter Chatwell said. Officials said they expected it to remain low in the near-term, thanks to declines in energy and import prices, but to gradually rise.

“All in all a dovish statement pretty much taking March off of the rate hike calendar”, Gaffney said in a statement e-mailed to NPR. But it signaled that a seven-year period of near-zero rates was ending and that while borrowing costs wouldn’t be rising fast, they would be headed steadily up. In declining to say whether risks to the outlook had shifted in light of market and overseas developments, officials made clear that they are struggling to assess a shifting landscape.