Fed signals gradual rate-hike approach intact despite soft patch
Washington: US 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. Even so, investors increased bets on a move in June 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% and monthly price declines in March. “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 didn’t signal any change to its balance sheet policy. “Inflation measured on a 12-month basis recently has been running close to the committee’s 2 percent 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,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd, wrote in an email to clients.
US Federal Reserve could be in difficult spot with higher prices, slower hiring
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