WASHINGTON – Federal Reserve officials left interest rates unchanged while signaling they’ll look past a recent deceleration in U.S. economic growth and stay on a gradual path of policy tightening.
“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. “Near-term risks to the economic outlook appear roughly balanced.”
Central bankers provided little direction on when they might next change the policy rate, giving themselves flexibility to raise or hold at their June meeting.
Fed officials have penciled two more rate hikes into their 2017 forecasts in addition to the one increase they made in March. Inflation is closing in on the Fed’s 2 percent goal and the jobless rate has fallen to a level officials see as consistent with their maximum-employment mandate.
“Inflation measured on a 12-month basis recently has been running close to the committee’s 2 percent longer-run objective,” according to the statement. Household spending rose “only modestly” but the fundamentals underpinning consumption growth “remained solid.”
Headline price gains stood at 1.8 percent in March, though a core measure that strips out food and fuel fell to 1.6 percent, based on Commerce Department data.
Unanimous vote
The decision to leave the target federal funds rate unchanged in a range of 0.75 percent to 1 percent was unanimous and widely expected by investors. Fed Chair Janet Yellen doesn’t have a press conference scheduled after this meeting, but she and at least five other Fed officials are scheduled to speak on Friday, giving policy makers a chance to explain their decision more fully if they so choose.
Ahead of the release, investors saw about a 70 percent chance of a rate increase at or by the Fed’s June meeting, based on trading in fed funds futures. That would mark a pickup in pace from 2016, when the Fed’s sole quarter-percentage point increase came at its December meeting.
The Fed didn’t signal any change to its balance sheet policy. It is discussing how to begin shrinking its $4.5 trillion in holdings, and officials have said they hope to release a plan this year. They may start unwinding by the end of 2017, though that hinges on economic conditions.
Employers 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. The unemployment rate was 4.5 percent in March, near or below most estimates for its longer-run sustainable low.
Gross domestic product in the first quarter of 2017 rose at a 0.7 percent annualized pace as weak consumer spending slowed the economy.
The Fed’s next meeting will take place June 13-14 in Washington. That decision will come alongside officials’ updated quarterly economic projections and will be followed by a press conference with Yellen.
