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Federal Reserve keeps interest rates steady, hints at further hikes

11 May 2017

Indeed, first quarter growth in gross domestic product advanced just 0.7 percent in the first quarter. Yellen has said that the longer-run trend in labor force growth is between 75,000 and 125,000 per month, so anything faster than that soaks up any remaining slack.

Most economists have expressed optimism that the economy is strengthening in the current April-June quarter, fueled by job growth, higher consumer confidence and stock-market records.

Higher rates would likely support the dollar by making US assets more attractive to yield-seeking investors.

The dollar index, which measures the greenback against six major currencies but the majority of whose weighting is against the euro, edged up 0.2 percent to 99.094, close to a 5-1/2-month low of 98.695 hit last week.

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In a move largely expected in financial markets, the policymaking Federal Open Market Committee unanimously agreed to keep its benchmark rate target at 0.75 percent to 1 percent. The policy statement did not say anything about the timing of additional rate hikes, but that was a signal that Fed officials were sticking to the forecast at their last meeting, in March, for two more small rate hikes this year.

"The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate", the Fed stated. "We expect this will be the case". "On balance, we still think that the Fed will hike again in June", agreed Paul Ashworth, chief USA economist at Capital Economics.

The only possibility of news - and the probability is pretty low - is that the Fed will highlight its intention to begin scaling back its asset holdings by modifying its policy of reinvesting all maturing mortgage and Treasury bonds.

The dollar soared to a 14-year-high after Mr. Trump's election as investors bet his fiscal stimulus and tax reform proposals would boost the USA economy. "That bodes well for consumer spending in the second quarter", Reuters said.

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"The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal", the central bank said in a statement.

Barring an exceptional surprise, the statement "will leave the market feeling confident the Fed will go", he added.

The central bank raised rates in March and December, given steady job creation and some signs of mounting price pressures - and amid the wave of optimism in the early days of President Donald Trump's term, with his promises of tax cuts and big infrastructure spending.

"If they come out overly concerned about the down tick in core PCE then we're going to scratch our heads pretty hard".

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There was no change in language regarding plans to shrink the balance sheet. The minutes to this policy meeting, which are due to be released May 24, could provide more information on this.

Federal Reserve keeps interest rates steady, hints at further hikes