The Federal Reserve on Wednesday voted to keep its benchmark interest rate at zero after government data confirmed the U.S. economy stumbled badly in the first quarter.
Brutal winter weather hindered the pace of the U.S. recovery, prompting the Fed to hold off on a rate hike that once seemed imminent. All calendar references to a rate hike have been removed from the Fed’s accompanying statement, meaning that policy makers will not hike until they see sufficient improvement in the labor market and a sustained uptick in inflation.
“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term,” the Fed said.
Therefore, a June rate hike is on the table, but seems unlikely barring signs of a dramatic second-quarter snapback.
The Fed acknowledged that the economy slowed over the winter, but policy makers think that weakness in the oil sector and weather-related issues will prove transitory.
U.S. GDP inched up by just 0.2 percent in the first quarter following the 2.2 percent growth seen in the fourth quarter. The modest uptick compared to economist estimates for an increase of about 1.0 percent.
Consumer spending declined despite a strong jump in household incomes as Americans were reluctant to spend savings at the gas pump, according to the Fed statement.
Looking further ahead, the central bank “continues to expect that …economic activity will expand at a moderate pace.”
Today’s Fed decision and statement was unanimous despite some recent comments from voting members that hinted at diverging views on whether to raise rates this summer.
The material has been provided by InstaForex Company – www.instaforex.com