Fed stands pat on interest rates

But policymakers say inflation is on the rise.

WASHINGTON – Inflation is creeping higher, and that’s making the Federal Reserve more confident about raising interest rates.

The Fed held its key interest rate steady Wednesday but noted inflation has climbed close to its 2% goal, paving the way for another hike in June.

As expected, the Fed kept its benchmark short-term interest rate at a range of 1.5% to 1.75%. The central bank’s policymaking committee lifted the rate by a quarter percentage point in March for the sixth time since late

2015 after holding it near zero for years following the 2008 financial crisis and recession.

In a statement after a two-day meeting, the Fed reiterated that it plans to continue to raise rates gradually, a pace that economists have interpreted as roughly every other meeting.

Fed policymakers have forecast two more rate increases this year, according to their median estimate, but faster inflation could trigger three additional moves. Before the statement release, Fed fund futures indicated a 90% chance of a hike in June, according to CME Group.

The Fed did nothing to discourage that view in its post-meeting statement. Here’s how the Fed sees:

❚ Inflation: The Fed said “both overall (annual) inflation and inflation for items other than food and energy have moved close to 2%,” which is the Fed’s target. Previous Fed statements stressed that consumer price increases were falling short of that threshold.

Policymakers added that inflation is expected to run near the Fed’s 2% benchmark “over the medium term.”

Inflation had been stubbornly low, but that’s starting to change, giving the central bank more reason to bump up rates to head off a spike in consumer prices. The Fed’s preferred measure of overall annual inflation rose to 2% from

1.7% in March. A core reading that strips out volatile food and energy items — which the Fed watches more closely — increased to 1.9% from 1.6%.

❚ The economy: The Fed said “economic activity has been rising at a moderate rate.” It noted that “household spending moderated from its strong fourth-quarter pace,” while business investment “continued to grow strongly.”

The economy grew at a 2.3% annual rate in the first quarter following a roughly 3% gain the final nine months of

2017. Analysts largely blame the slowdown on delays in tax refunds that damped consumer spending and economic measurement challenges the government faces early in the year.

Many economists expect a pickup to

3% growth the rest of the year amid the

$1.5 trillion federal tax cuts, which are expected to juice consumer and business spending, and a federal budget that boosts government outlays by about $300 billion.

❚ Jobs: “The labor market has continued to strengthen,” the Fed said.

Job growth has been volatile, with warm weather pulling forward hiring in February, followed by a natural slowdown in March. But monthly payroll gains have averaged a solid 202,000 so far this year. And the jobless rate is at a

17-year low of 4.1%. That has led to worker shortages that are expected to spur faster pay increases and inflation.

❚ What it means: The Fed didn’t shed any light on whether it will raise rates two or three more times this year, noting that it will depend on the economy’s performance.