Fed Holds Rates Steady, Notes Strongly Rising Business Investment

Fed Holds Rates Steady, Notes Strongly Rising Business Investment

On Wednesday, the US central bank released its latest policy statement, maintaining a target benchmark interest rate range of 1.5%-1.75%.

The FOMC's two-day meeting followed the release of data Monday that showed inflation measured by the central bank's preferred gauge had hit its 2 per cent target after being below that goal for nearly every month since April 2012.

The US central bank said that price growth has moved close to its target and is likely to stay there in the medium term as it held short-term rates unchanged at 1.5 to 1.75 per cent. Therefore, we still expect the Fed to be gradual in its approach and deliver only two more rate hikes this year.

Similarly, sterling seemed to have left behind its Brexit-related worries due to expectations of two interest rate rises this year by the Bank of England.

The idea is that the Fed is willing to endure temporary periods when prices may rise faster than 2%, just as it had been willing to endure periods when prices rose slower than its longer-run goal.

U.S. interest rates are at 1.5 per cent to 1.75 per cent, the highest in a decade.

Combined with USA economic growth and low unemployment, stronger inflation will likely encourage the Fed to maintain its pace of gradual rate increases this year.

Many on Wall Street think the economy is accelerating so quickly that the Fed will have to hike rates three more times in 2018 to keep the economy from overheating. The company beat revenue and profit expectations in its March quarter, with its shares ending the regular session up 2.3 percent. The Federal Reserve noted inflation had moved up but said its two percent target was "symmetric", indicating there was margin to fluctuate above or below that level.

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The dollar has been buoyed in recent weeks by the strong United States economic outlook and rising yields amid signs of a slowdown in some other developed economies, especially in Europe.

Labor markets remain tight. Moreover, the implied probability that inflation ends up averaging 3% or more over the next five years is at comparable levels to when the Fed felt good about the world in 2013-2014.

The Fed removed the phrase that it is "monitoring inflation developments closely".

It's probably too soon for officials to have reached firm conclusions on this front.

Meanwhile, the technology-heavy Nasdaq Composite Index (NYSEARCA:QQQ) declined 0.4%% to finish at 7,100.90.

Late previous year, officials began to revise up their growth projections due to the tax cut legislation, but they held back from revising their interest-rate projections because of low inflation readings.

Trade policy is another wild card. But further increases could be delayed by the impact of President TrumpDonald John TrumpTop Trump trade official: "Any country or entity" exempt from tariffs will face quotas Pence in Arizona hails Arpaio as "champion" of "rule of law" Ex-Trump aide decries Senate Russia probe over high legal bills: report MORE's proposed tariffs among other obstacles.

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