Federal Reserve leaves rates unchanged

  01 February 2018    Read: 1161
Federal Reserve leaves rates unchanged
 The Federal Reserve said on Wednesday that it was still trying to stimulate faster economic growth as one of the longest expansions in American history neared the end of its ninth year, NY Times reports.  

The Fed said after a two-day meeting of its policymaking committee that it was leaving its benchmark interest rate unchanged in a range of 1.25 percent to 1.5 percent, a relatively low level that the Fed said would help support continued job growth and stronger inflation.

The Fed’s economic outlook remained relatively upbeat, setting the stage for a rate hike at its next meeting in March. But the decision to hold steady in January, while widely expected, underscored that the Fed still regards the economic expansion as fragile and in need of assistance.

The announcement brought down the curtain on Janet L. Yellen’s four-year tenure as the Fed’s chairwoman. She will step down on Saturday at the end of her term. The Fed said that her successor, Jerome H. Powell, a Fed governor since 2012, would take the oath of office on Monday morning.

The economy grew 2.3 percent in 2017, extending a prolonged period of unusually stable growth. And economic forecasters, including most Fed officials, expect somewhat faster growth this year, partly as a result of the $1.5 trillion in tax cuts that went into effect in January.

The Fed said the economy is growing at a “solid rate” and the labor market continues to improve.

The assessment “is about as strong a characterization of the domestic economy as the committee has had during the current recovery,” said Michael Gapen, chief United States economist at Barclays. He said it was a “strong signal” that the Fed is planning to raise its benchmark rate in March.

A measure derived from asset prices, which tend to rise with the Fed’s benchmark rate, implied about a 78 percent chance of a March rate increase on Wednesday, according to CME Group, up from about 71 percent before the Fed released its statement.

The unemployment rate stood at 4.1 percent in December, and Fed officials do not expect it to fall much further. Instead, as growth continues, they expect inflation to begin rising more quickly.

But Fed officials are still committed to moving slowly. Growth, while steady, remains weak by historical standards, and although unemployment is quite low, wage growth remains sluggish, too.

“The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation,” the Fed said in the postmeeting statement.

The announcement made little impression on financial markets because it left the Fed’s plans unchanged. The Standard & Poor’s 500-stock index rose 0.05 percent on the day to close at 2,823.21. The yield on the benchmark 10-year Treasury, which has climbed over the last few months on market expectations of stronger growth and inflation, closed at 2.7 percent, down 0.02 points on the day.

Much of the economic strengthening happened under Ms. Yellen’s leadership, a period during which the Fed extended the economic stimulus campaign it began after the 2008 financial crisis. While critics warned that the Fed had exhausted its ability to improve economic conditions, and would instead unleash inflation, Ms. Yellen convinced her fellow Fed officials that the economy had room to grow, and events proved her right.

 


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