Tue | Aug 14, 2018

Fed leaves key rate unchanged as Yellen exits

Published:Friday | February 2, 2018 | 12:00 AM
Federal Chairman Janet Yellen. (AP)

The United States Federal Reserve has left its benchmark interest rate unchanged but signalled that it expects to resume raising rates gradually to reflect a healthy job market and economy.

At Janet Yellen's final meeting as chair on Wednesday, the Fed kept its key short-term rate in a still-low range of 1.25 per cent to 1.5 per cent. It said in a statement that it expects inflation to finally pick up this year and to stabilise around the Fed's target level of two per cent. In its previous statement, the Fed had predicted that inflation would remain below its target rate.

The Fed also indicated that it thinks the job market and the overall economy are continuing to improve.

"Gains in employment, household spending and business fixed investment have been solid," its statement said.

The central bank said it expects the steadily strengthening economy to warrant further gradual increases in its benchmark rate. Those additional rate hikes would likely lead, in time, to higher rates on some consumer and business loans.

Yellen has led a cautious approach to rate increases in her four years as chair, and Jerome Powell, who will succeed her next week, has indicated he favours a similar approach.

The Fed modestly raised its key rate three times in 2017, and most economists expect the Powell-led Fed to do so at least three additional times this year beginning in March. Powell has been a Yellen ally and among the Fed's consensus-builders in 5.5 years on the central bank's board.

The US unemployment rate is at a 17-year low of 4.1 per cent, and the economy expanded at a 2.6 per cent annual rate in the October-December quarter, helping lift growth for all of 2017 to 2.3 per cent.

The Fed's next scheduled policy meeting in March, when most economists foresee the next rate hike, will be the first time that Powell is scheduled to hold one of the Fed leader's quarterly news conferences.

In its statement Wednesday, the Fed said Powell would be sworn in on Monday.

With Yellen's departure, the seven-member Fed board will have four vacancies. Marvin Goodfriend, a conservative economist, has been nominated by Trump for one of the vacant board seats. Trump has yet to make nominations for the others.

- AP