Fed leaves rates unchanged, says inflation near goal

Morgan Stanley's Zentner Says Inflation Moving Higher

Morgan Stanley's Zentner Says Inflation Moving Higher

A related question for Mr. Powell and his colleagues is how the Fed would respond if inflation rises above the 2% target, which has scarcely happened since the central bank formally adopted it in 2012.

The vote was a unanimous 8-0 vote to keep Fed Funds steady in the target range of 1.50% to 1.75%.

The Fed's preferred measure of inflation soared 1.9 percent in the 12 months through March, the biggest increase since February 2017, after increasing 1.6 percent in the year through February, the U.S. Commerce Department reported. The factor that could upset its plans is wage pressures, which are starting to flow through the economy.

The central bank was widely expected to hold steady on interest rates this month, despite recent data showing that inflation hit the Fed's target of 2% annual growth.

"In the end it was not a major surprise for the market that the Fed left the key rate unchanged at the meeting without a press conference but made positive comments on the outlook and further rate hikes", Commerzbank analysts said in a note.

"Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term", the Fed said. That previously didn't contain the word "symmetric".

"This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments", the Committee said in its statement.

U.S. stocks swung into positive territory and Treasuries firmed after the latest statement.

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The MSCI Emerging Market Index decreased 0.9 percent to its lowest in a week.

The dollar has been buoyed in recent weeks by the strong USA economic outlook and rising Treasury yields amid signs of a relative slowdown in some other developed economies, such as those in Europe.

Market observers looking for signs of more aggressive monetary policy tightening from the Fed were initially disappointed, resulting in a slight pullback in the greenback.

And RDQ Economics said the wording changes looked like "a signal that the Fed is not likely to react in a hawkish manner to inflation moving above 2 percent".

It gave the economy a thumbs up: "T$3 he labor market has continued to strengthen and...economic activity has been rising at a moderate rate". The Fed also believes that the risks to economic outlook appear roughly balanced.

That meeting will be one of the four each year in which Powell will hold a press conference, which will allow him to explain the reasoning behind any move.

Although the Fed confirms it will probably lift interest rates soon, following its two-day meeting, that won't be until June.

According to some economists, the "stay the course" policy stance indicates that the central bank is in no hurry to raise interest rates faster than they forecasted in March, which called for two more rate hikes this year.

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