Federal Reserve: US economic slowdown temporary

Before the announcement, investors had put the odds of a rate hike on Wednesday at 5%, according to the FedWatch Tool by the CME Group futures exchange.

Most analysts expected there to be no action on rates this month. Most policymakers have already made plain that in contrast to previous years, the Fed feels more confident in its forecast of two more rate increases this year. The Fed’s hawkish tone all but dismissed weak first-quarter data in which the economy grew at only 0.7 percent, which the Fed acknowledged in its statement. South Korea’s KOSPI bucked the weaker trend and was up 0.5 percent after touching an all-time high earlier in the session on strong corporate earnings.

The Federal Reserve has voted not to raise its key interest rate today, following hikes in December and March.

“In view of realized and expected labor market conditions and inflation, the Committee chose to maintain the target range for the federal funds rate at 3/4 to 1%”.

And while there was never any likelihood that Fed policy makers would lift short-term rates at their meeting this week, an increasing number of investors believe that the United States central bank will be forced to abandon plans for two more rate hikes this year.

Gold prices nursed overnight losses in North American trade on Thursday, falling to the lowest level in around six weeks after the Federal Reserve left the door open to raising interest rates in June.

The statement that the Fed issued did express some misgivings that “economic activity slowed” as “household spending rose only modestly”.

Companies continued to hire at the start of 2017, averaging 178,000 net new jobs a month in the first quarter, and wage growth has begun to move up, suggesting tightness in the labor market.

Inflation had been edging higher, but the so-called core PCE price index increased 1.6 percent in the 12 months through March, the smallest gain since last July.

“Clearly, the improvement (in broader financial conditions) has been driven by tighter credit spreads and USA equity markets hitting all-time highs or approaching them”, he added.

There was no change in language regarding plans to shrink the balance sheet.

Ryan Sweet, senior economist at Moody’s Analytics, said: “The Fed is communicating its mantra of gradual rate hikes”. Most Fed officials had anticipated that the central bank was likely to reduce its 4.5 trillion dollars of balance sheet later this year, if the economy continued to perform as expected, according to minutes of the Fed’s last policy meeting in March.

The Fed statement “makes the Friday non-farm payrolls report I think more important, because if that is disappointing then the Fed is going to backpedal”, said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.

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