FOMC signals patience as rates stay on hold
- Author: Zachary Reyes May 05, 2018,
May 05, 2018, 19:30
Asian funds have balked at buying Treasuries in recent months as higher US rates raise hedging costs.
This is largely due to the three PMI surveys collectively showing a rather muted rebound in business activity after the heavy snowfall in March - short of February's pace of growth and indicative of a subdued start to Q2 for the British economy. The jobless rate is close to 4 percent - below the level the Fed considers full employment. In our view, the central bank appeared to be signaling that it would tolerate slight over-shooting of the inflation target without raising interest rates too aggressively.
He said the low fed funds rate target leaves central banks little room in the next downturn.
The stability in rates this month will bring some respite to homebuyers who have been challenged by rising mortgage rates after the hike in overall interest rates by the Fed in March.
They've indicated they won't raise rates more aggressively if inflation rises a bit above that level.
The question remains how quickly and high Jay Powell, the Fed chairman, and his colleagues boost borrowing costs as they attempt to prevent the U.S. from overheating while keeping the economy moving at a steady pace.
The Fed left its benchmark overnight lending rate in a target range of between 1.50 per cent and 1.75 per cent. They voted unanimously Wednesday to leave it there.
A June rate hike remains on the table, as the Fed has projected at least two more rate hikes in 2018 following the most recent tightening in March. The preliminary first quarter GDP number came in as expected at 0.4% QoQ for the first three months of the year.
"The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate", the statement said, repeating language that it introduced in January. The kiwi traded at 58.50 euro cents from 58.42 cents.
December's Republican-led tax cuts, coupled with higher limits on public spending this spring, will probably bolster growth going into the second quarter of the year.
Oil prices slid on Tuesday as the dollar remained near a four-month high, but worries that US President Donald Trump will pull out of the Iran nuclear deal underpinned the market.
Commodity analysts have said that gold could benefit from higher inflation pressures as it will keep real interest rates relatively low. That is even while there is strong growth in hiring and in investment.
In the end, the Fed meeting was a "wait and see" moment.
The Fed has a goal of 2% price inflation.
And so in making this change, Fed officials are acknowledging that inflation is getting closer to its target.
The Dow Jones Industrial Average slipped 31 points, or 0.1%, to 24068. The firming in inflation numbers could make it harder to maintain that position. Chinese officials responded with tariffs of their own. In the European Union the pattern is expected to be similar, but a tad higher, with 1.7% this year, 1.8% next.