Federal Reserve keeps interest rates steady -- June hike likely

"Fortunately‚ with markets already pricing in a June rate hike at 66%‚ the Fed doesn't have to work as hard to manage expectations as it did earlier this year and so any signal may be fairly subtle‚" Oanda market analyst Craig Erlam said.

The Federal Reserve Open Market Committee (FOMC) unanimously voted to hold the target range for the federal funds rate steady at 0.75 to 1 percent at their May meeting.

"The main takeaway is full steam ahead" with rate hikes, said Kathy Bostjancic, head of USA macro investor services at Oxford Economics.

The Federal Reserve kept its benchmark interest rate unchanged and said weak economic growth in the first quarter was "transitory", according to a statement Wednesday. They went out of their way to emphasize this is not something they see persisting and pretty much says to me that their two rate hikes are still on the table for the balance of the year.

The firm wage growth helped offset news on Friday that the US economy grew at its weakest pace in three years in the first quarter as consumer spending nearly stalled.

It added: "The fundamentals underpinning the continued growth of consumption remained solid". What's worse is that excluding food and energy prices, core inflation (PCI) has dropped to 1,6%, that is its lowest level since 2001.

The Federal Reserve said on Wednesday it believes the recent slowdown in United States growth is likely to prove temporary as it stayed on course for a further increase in short-term interest rates as soon as June.

"I don't think this data by itself will derail a June hike", said Vassili Serebriakov, FX strategist at Credit Agricole in NY.

Inflation had been edging higher, but the so-called core PCE price index increased 1.6 percent in the 12 months through March, the smallest gain since last July.

If the number of new jobs hits for the forecast 170,000 plus then a rate increase can be expected in six weeks time, at the next Fed meeting on June 13 and 14.

U.S. economic growth slowed to an annual rate of 0.7 per cent for the first quarter of the year and the expectation was that the Fed would hold interest rates steady, after a key measure of inflation showed price increases moderating during March. On the whole, today's decision changes very little in the assessment for monetary policy. The increase in consumer spending, the largest contributor to growth, was at the lowest since 2009, at 0.3%.

The Fed also is watching whether President Donald Trump can push through Congress his initiatives on tax cuts and federal spending, which Mr. Trump seeks to bolster economic growth. Most Fed officials had anticipated that the central bank was likely to reduce its 4.5 trillion dollars of balance sheet later this year, if the economy continued to perform as expected, according to minutes of the Fed's last policy meeting in March.

  • Zachary Reyes