Jobs report 'cements' Fed interest rate hike in June, economists say
- Author: Zachary Reyes May 06, 2017,
May 06, 2017, 17:25
A television screen on the floor of the New York Stock Exchange reflects the Federal Reserve's decision Wednesday to hold rates steady.
The New Zealand dollar fell after the latest Federal Reserve statement kept intact speculation that the U.S. central bank will continue with the two rate hikes it has flagged for 2017, starting with one in June.
The hawkish Fed statement indicated that policymakers think the recent weakness in the economy was temporary and that more rate hikes are coming this year.
While the European Central Bank continues to pump tens of billions of euros into the euro zone economy each month, the Fed has raised interest rates twice in the past six months and is expected to hike them twice more by the end of the year.
A statement the Fed issued Wednesday noted that the economy slowed sharply during the January-March quarter, but it expects that slump to be "transitory". Fed leaders meet again in June, and Wall Street predicts there's a 67% chance of a June rate increase, according to CME Group.
In a policy statement following a two-day meeting, the Federal Open Market Committee highlighted what it called "solid" average gains in job growth in recent months, improved business investment and inflation running close to the central bank's 2% annual target.
Economic data show the USA economy got off to slow start in 2017 as Americans dialed back spending and companies reduced production to get inventories back in line.
Investors described the post meeting statement issued early this morning Sydney time as "bullish" and pointed to the Fed's commentary that U.S. consumer spending continued to be solid, business investment had firmed and inflation has been "running close" to the Fed's target. But they had been hoping for some indication of a rate hike at the Fed's next meeting in June. This indicated that the United States central bank was not too concerned with the disappointing first quarter GDP data and signaled to markets that a June rate hike was still on the table.
Most analysts expected there to be no action on rates this month. 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.
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 Committee continues to closely monitor inflation indicators and global economic and financial developments", the central bank said in the statement.