The US Federal Reserve has maintained interest rates at the 0.25-0.5 per cent level in spite of continued improvements to the labour market.
In its latest statement the Federal Reserve Open Market Committee (FOMC) noted that since its December meeting household spending and business fixed investment has increased at moderate rates, while a range of recent labour market statistics “points to some additional decline in underutilization of labour resources”.
However it added economic growth had slowed late last year, while inflation continued to run below the FOMC’s 2 per cent target, following the decline in energy prices,.
It stated: “Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labour market strengthens further.”
The FOMC said it will continue to closely monitor global economic and financial developments to assess their implications for employment and inflation and the balance of risks to the outlook.
But it emphasised: “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
With the next FOMC meeting scheduled for March 15-16, Ian Kernohan, economist at Royal London Asset Management, suggested the central bank wanted to keep its options open.
He adds: “However, there are signs in the January statement that suggest a dovish tint to their thinking, in particular the reference to global economic and financial developments implies it is not just about payrolls. Our base case remains that the Fed will lift rates again this year, but by less than the four hikes signalled in their most recent ‘dot plot’.”
