Date
19 January 2017
Janet Yellen says it remains to be seen whether a recent firming in US core inflation, which excludes volatile energy and food components, will be sustained. Photo: Reuters
Janet Yellen says it remains to be seen whether a recent firming in US core inflation, which excludes volatile energy and food components, will be sustained. Photo: Reuters

Fed holds steady, eyes two rate hikes this year

The US Federal Reserve held interest rates steady Wednesday and indicated that moderate US economic growth and “strong job gains” would allow it to tighten policy this year.

Fresh projections show policymakers expect two quarter-point hikes by the end of 2016, half the number they were expecting in December, Reuters reports.

The US central bank noted, however, that the United States continues to face risks from an uncertain global economy.

“A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months,” the Fed said in a policy statement in which it kept the target range for its overnight lending rate at 0.25-0.5 percent.

“However, global economic and financial developments continue to pose risks” and will keep inflation low for the remainder of 2016, it said.

In a news conference, Fed chairwoman Janet Yellen said it remains to be seen whether a recent firming in US core inflation, which excludes volatile energy and food components, will be sustained.

Fed policymakers projected weaker economic growth and lower inflation this year and lowered their estimate of where the targeted lending rate would be in the long run to 3.3 percent from 3.5 percent — a signal that the economic recovery would remain tepid.

The interest rate outlook is a shift from the four hikes expected when the Fed raised rates in December for the first time in nearly a decade.

The majority of policymakers now say they expect it will be appropriate to raise rates by about half a percentage point by the end of this year.

The US dollar fell against both the euro and the yen in the wake of the statement. Bond yields hit session lows, while stock markets rallied, the S&P 500 hitting its highest intraday level since Jan. 4.

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