Fed holds off on hike, expects to raise later

Sluggish quarter slows central bank’s effort to gradually boost rates.

WASHINGTON — The Fe de r a l Reserve has left its benchmark interest rate at a still-low level near 1 percent while signaling that it expects a resilient U.S. economy and solid job market to justify higher rates later this year.

A statement the Fed issued Wednesday after its latest policy meeting noted that the economy slowed sharply during the January-March quarter but that it expects that slump to be “transitory.”

The Fed’s pause in raising rates comes after it modestly lifted its benchmark short-term rate in December and March. Most economists expect it to do so again when it next meets in mid-June.

Analysts noted that the Fed’s statement Wednesday contained no surprises and did not alter their view that the central bank is on track for two more rate hikes this year.

“We still think that the Fed will hike again in June, although that assumes employment and growth rebounds in April and May,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Stock prices and bond yields edged slightly higher after the Fed announced its decision at 2 p.m. Eastern time. The moves might have reflected the Fed’s dual message that while now isn’t the time to resume raising rates, the economy remains durable enough to withstand further hikes soon.

Even after the Fed’s recent increases, rates throughout the economy remain low by historical standards and are widely thought to have helped support the economy throughout the recovery from the Great Recession. Low rates have made loans relatively inexpensive, for example, for businesses and for home and auto buyers.

Nearly eight years after the recession ended, the unemployment rate is a low 4.5 percent. Key gauges of the economy — from home sales to consumer confidence to the stock market — appear robust. Still, consumer spending and factory output have slowed, and inflation remains below the Fed’s target rate.

The Fed is in the midst of a campaign to gradually raise interest rates from ultra-lows. One reason for it to stand pat this week is that even though the job market has shown steady strength, the economy itself is still growing in fits and starts. On Friday, the government estimated that the economy, as gauged by the gross domestic product, grew at a tepid 0.7 percent annual rate last quarter.

It was the poorest quarterly performance in three years.

Though some temporary factors probably held back growth last quarter and might have overstated the weakness, the poor showing underscored that key pockets of the economy remain sluggish.

On Monday, the government said consumer spending stalled in March for a second straight month. And the Institute for Supply Management reported a drop in factory activity.