Federal Reserve steady on interest rates
WASHINGTON — The Federal Reserve held interest rates steady at the conclusion of its two-day policy meeting Wednesday and acknowledged rising inflation, but it gave little indication that officials are worried about a sudden escalation in prices or an abrupt slowdown in economic growth that could alter its gradual pace of rate increases.
The Federal Open Market Committee’s unanimous decision not to raise rates so quickly after a March increase had been widely expected. The official statement from the committee gave no indication that Fed officials plan to raise rates faster than previously telegraphed.
Officials made only a few changes to the language they had used after their March meeting to describe inflation and growth. Most notably, they acknowledged that “on a 12month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent,” which is the central bank’s stated target for inflation.
On Wall Street Wednesday, a late slump left stocks mostly lower as investors appeared to grow more concerned about the possibility of rising interest rates.
Steve Wood, chief market strategist at Russell Investments, said investors believe the Fed doesn’t expect to do much to prop up the economy.
“The Fed views the economy as having improved and inflation has returned to normal,” Wood said. “That environment, in the Fed’s opinion, no longer justifies overly accommodative monetary policy.”
The Fed is midway through what is meant to be a long and gradual push toward historically normal rates. It raised its benchmark interest rate in March to a range of 1.5 to 1.75 percent. Economic projections released at that meeting indicated that officials were split on whether they expected to raise rates a total of three or four times this year, with a narrow majority leaning toward three overall.
Economists overwhelmingly predict that the Fed will next raise rates in June.
Data released Monday showed that wages and prices are now growing at 2 percent a year, according to the Fed’s preferred inflation measure, the personal consumption expenditures price index.
Officials acknowledged that increase Wednesday, but the statement suggested that the Fed was not overwhelmingly concerned.
“The Fed is telling markets that it won’t overreact to a run of higher numbers” in inflation readings, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note after the meeting, “just as it didn’t overreact to the run of five straight downside surprises last year.”