Federal holds interest rates steady, dismisses first-quarter slump as ‘transitory’

The Federal Reserve on Wednesday left the cost of borrowing unchanged and dismissed a weak first quarter as temporary, signaling it is still on track to raise interest rates at gradual pace.

“The FOMC views the slowing in growth during the first quarter as likely to be transitory,” the statement said, in unusually dismissive language. Job gains were described as “solid,” as were the fundamentals underpinning the continued growth in consumer spending. Business fixed investment “firmed,” the central bank noted.

Stocks SPX, -0.21%   moved lower right after the statement was released but not much movement was to be had in financial markets.

The decision leaves the benchmark short-term fed funds rate in a range of 0.75% to 1%. The median forecast of Fed officials is for two additional quarter-point rate hikes this year.

Investors who bet on the future path of the fed funds rate project the next rate hike occurring in June, according to CME FedWatch.

There were no dissents from the statement.

Economic data show the U.S. economy got off to slow start in 2017 as Americans dialed back spending and companies reduced production to get inventories back in line.

Yet the economy has repeatedly picked up speed in the spring and summer, and Wednesday’s statement shows the central bankers expect the same pattern to reoccur.

Consumers and businesses are the most upbeat in year and early signs point to faster growth in the second quarter.

A string of higher inflation readings was also broken in March, a sign the economy had cooled off.

In its statement, the Fed noted the decline in inflation, excluding energy and food, in March but said that overall inflation “has been running close” to the central bank’s 2% target.

The confident tone of the statement fits with an important shift in the Fed’s policy stance this year. Instead of being cautious, the central bank now is more confident about its plans to keep raising rates.

“The Fed now needs a reason not to move rather than having to construct a compelling case to go,” said Stephen Stanley, chief economist of Amherst Pierpont in a note to clients prior to today’s statement.

There was no change in language regarding plans to shrink the balance sheet. The Fed simply repeated it plans to hold the balance sheet steady until “normalization of the level of the federal funds rate in well under way.”

At its prior meeting in March, the Fed decided to make a decision on when to shrink the balance sheet by the end of the year, according to the minutes of the meeting.

Analysts expect there will be further guidance to the Fed’s thinking when the minutes of the meeting are released on May 24. A number of Fed officials may shed further guidance when they deliver speeches on Friday.

Swati Sharma

SWATI SHARMA is an editor at “On Breaking”. She is a very enthusiastic journalist and has worked for many Esteemed Online Magazines and Celebrity Interview, thus gaining a huge experience before joining the team at On Breaking. She is a great combo of intelligence and passion, which adheres in her write-ups done for the website. She is specialises in Headline, Business and Entertainment.

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