Federal Reserve upbeat on US economy but holds rates

(c) Sky News 2017: <a href="http://news.sky.com/story/federal-reserve-upbeat-on-us-economy-but-holds-rates-10862001">Federal Reserve upbeat on US economy but holds rates</a>
 

The US Federal Reserve kept interest rates on hold at its latest policy meeting, remaining upbeat on economic prospects despite weak first quarter growth.

While the US central bank's decision to maintain its benchmark rate at a target range of 0.75%-1% was largely expected, the statement accompanying the decision was being closely watched for hints on its next move.

While it gave no explicit direction, the committee pointed to a resilient jobs market - with unemployment running at 4.5% and pay growth rising - coupled with inflation "running close" to its 2% target, as evidence the economy remained strong despite weaker-than-expected first quarter growth.

Data released last Friday showed the slowest pace of expansion in US gross domestic product (GDP) for three years.

The statement - agreed unanimously - said: "The committee views the slowing in growth during the first quarter as likely to be transitory."

It added: "The fundamentals underpinning the continued growth of consumption remained solid."

The remarks point to confidence that weaker consumer spending levels and manufacturing output were a blip.

Most economists have expressed optimism that the economy is strengthening in the current April-June quarter, fuelled by job growth, higher consumer confidence and stock-market records on promises of tax cuts and investment from President Trump.

The Fed has raised rates three times since the financial crisis - with the most recent increase announced in March.

Its rate-setting committee does not meet again until mid-June - giving policymakers more time to digest more recent economic developments.

Neil Wilson, senior markets analyst at ETX Capital, said: "If the Fed really is to hike in June, and market pricing suggests it is, we can expect various Fed officials to get wheeled out over the coming weeks to start talking up the prospect in order to smooth the path for the hike.

"The Fed is doing a very good job of pre-warning the markets under Yellen and they will have to talk up the growth prospects and show that the Q1 (first quarter GDP) number was indeed transitory."

US stock markets trimmed losses in the wake of the Fed statement while the dollar strengthened against the euro and sterling - hitting six-week highs versus the yen.

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