Fed holds interest rates steady

Federal Reserve

Trump says he is considering breaking up the banks

By a unanimous decision, the FOMC voted to leave the target federal funds rate in a range of 0.75% to 1%.

Federal Reserve officials remained on track to gradually tighten monetary policy after leaving interest rates unchanged and signalling they were not alarmed by recent USA economic weakness.

Fed Vice Chair Stanley Fischer said last month that the central bank remained on track for two more rate increases this year despite the recent weak economic data.

A June hike is now 65 percent priced in by markets, according to Reuters data.

"The ECB (European Central Bank) may be talking about policy normalization, but at the end of the day they're still easing; they're still expanding the balance sheet", said Barclays currency strategist Hamish Pepper, in London.

"Last night the Fed rate decision was nearly exactly as expected with a slight hint towards hawkishness", Standard Bank trader Warrick Butler said.

"In the meantime, we see investors going with this tightening mood and favouring exposures benefitting from a hike such as floating rate notes".

The wording of the Fed's policy statement strengthens the prospect of two more increases in the benchmarket lending rate this year, likely at the June and September meetings.

The Fed's beige book survey of the economy prepared in advance of this week's meeting noted reports across the country of firms that had to provide bonuses, and increase wages and benefits, while still struggling to fill openings, even for low-skilled work.

Investors next foresee an interest rate rise in June, according to Fed futures data compiled by the CME Group. The odds of a June rate hike were 67%.

The Fed reiterated its view that monetary policy remains accommodative to support both an uptick in labour market conditions and a sustained return to 2% inflation. What's more, inflation fell for the first time in more than a year in March, while consumer spending numbers were flat.

The Fed also is watching whether President Donald Trump can push through Congress his initiatives on tax cuts and federal spending, which Mr. Trump seeks to bolster economic growth. While the rate of economic growth leaves much to be desired, at 0.7% annual pace in the first quarter, unemployment hit a 10-year low, at 4.5%. Indeed, first quarter growth in gross domestic product advanced just 0.7 percent in the first quarter. That was down from 3.5% the previous quarter. Economists had expected the index to inch up to 55.8.

"The Fed will probably say in their statement that they expect the economy to rebound in the second quarter", said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.

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