WASHINGTON • United States central bankers stuck to their outlook for gradual monetary policy tightening after they left interest rates unchanged and showed no alarm over recent economic weakness.
Federal Reserve officials were unusually explicit in their statement, released on Wednesday following a two-day meeting, indicating that a disappointing first quarter would not knock the committee off its path to raise rates two more times this year after a hike in March.
"The committee views the slowing in growth during the first quarter as likely to be transitory," the Federal Open Market Committee (FOMC) said. "Near-term risks to the economic outlook appear roughly balanced."
The widely expected decision contained no concrete commitment to the timing of the next rate increase. Even so, investors increased bets on a move next month after absorbing the Fed's sanguine assessment of the outlook and its encouraging observations on inflation, following data showing first-quarter economic growth of 0.7 per cent and monthly price declines in March.
"Nothing in the statement today, which was voted unanimously by the FOMC, leads me to believe that the Fed is even close to changing its mind on rates," Cornerstone Macro's Roberto Perli wrote in a note to clients. "Base case is for a couple more rate hikes this year - probably in June and September - and for the beginning of balance sheet shrinkage in December."
The Fed did not signal any change to its balance sheet policy. It is discussing how to begin shrinking its US$4.5 trillion (S$6.3 trillion) in holdings, and officials have said they hope to release a plan this year. They may start unwinding by the end of this year, though that hinges on economic conditions.
The jobless rate has fallen to a level officials see as consistent with their maximum-employment mandate, and inflation is near the Fed's 2 per cent goal, even if price gains slowed in March. A core measure that strips out food and fuel was 1.6 per cent on an annual basis, based on Commerce Department data, and headline inflation stood at 1.8 per cent.
"Inflation measured on a 12-month basis recently has been running close to the committee's 2 per cent longer-run objective," the Fed said. Household spending rose "only modestly" but the fundamentals underpinning consumption growth "remained solid".
"The statement makes it very clear that the Fed does not take the reported slowdown in first-quarter growth seriously," Pantheon Macroeconomics chief economist Ian Shepherdson wrote in an e-mail to clients.
The decision to leave the target federal funds rate unchanged in a range of 0.75 per cent to 1 per cent was unanimous and in line with forecasts.
Fed chairman Janet Yellen did not have a press conference after this meeting. But she and at least five other Fed officials are scheduled to speak today, giving policymakers a chance to explain their decision more fully.
BLOOMBERG
