Coverage: Fed leaves interest rates unchanged

The Federal Reserve Board voted Wednesday not to raise its key interest rate, as central bank officials expressed concern with the pace of economic growth.

Jeff Cox of CNBC had the news:

In a move largely expected in financial markets, the policymaking Federal Open Market Committee unanimously agreed to keep its benchmark rate target at 0.75 percent to 1 percent. The rate is used as a guide for a variety of consumer debt instruments such as credit cards and adjustable-rate loans.

The accompanying statement showed some misgivings about an economy that grew just 0.7 percent in the first quarter.

Adjustments from previous statements indicated that Fed officials judged at this week’s two-day meeting that “economic activity slowed” while “household spending rose only modestly.”

While inflation when looked at in a 12-month prism is “running close” to the Fed’s 2 percent objective, a measure that excludes volatile food and energy prices showed a pace “somewhat below” the target. So-called core personal consumption expenditures increased at a 2 percent pace during the first three months, according to a government report Friday, though the core Consumer Price Index number showed a slight monthly decline in March.

Lindsay Dunsmuir and Jason Lange of Reuters reported that the Fed downplayed first-quarter economic weakness:

In a bullish statement following the end of a two-day policy meeting, the central bank also said consumer spending continued to be solid, business investment had firmed and inflation has been “running close” to the Fed’s target.

“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Fed said in a unanimous statement.

The labor market continued to strengthen even as growth in economic activity slowed and “the fundamentals underpinning the continued growth of consumption remained solid,” policymakers added.

The Fed raised its benchmark rate by a quarter percentage point at its last meeting in March to a target range of 0.75 percent to 1 percent.

Before this week’s meeting most Fed policymakers had made it clear that in contrast to previous years the central bank feels more confident in its forecast of two more rate increases in 2017.

Elena Holodny of Business Insider reported a rate hike is expected in June:

Most market-watchers expect the Fed will raise rates again at its June meeting. Even with a weaker-than-expected jobs report in March, policymakers can look at the labor market’s relative long-run strength as evidence for continuing hikes.

“The Fed’s reaction function has changed significantly from the last two years as it appears to be firmly on a policy normalization track and is not reacting to every piece of high frequency economic data. It would take a dramatic slowdown in the economy to derail the Fed’s normalization plans,” Roiana Reid of Berenberg Capital Markets said in a note.

“The Fed is likely to raise rates at its June and September meetings, before announcing a change in its balance sheet policy late in the year,” she argued.

The market’s expectations for a hike in June jumped to 97.5% after the FOMC announcement, up from about 69% earlier on Wednesday, according to the World Interest Rate Probability data provided by Bloomberg.