Economic fears prompt Fed to slow pace of rate hikes

The Federal Reserve held interest rates steady on Wednesday and cut the expected pace of future monetary policy tightening as a weak global economy continued to weigh on policymakers despite ongoing US growth and a healthy labor market.

A moderate economic expansion and “strong job gains” would make it appropriate to hike rates over the year, the US

central bank said in a policy statement. Fresh projections showed a majority of its policymakers were comfortable with two quarter-point rate hikes by year's end, half the number seen in December. But Fed chair Janet Yellen later stressed the uncertainty surrounding that outlook, noting that even recent signs of strengthening inflation needed to be proven to be more than a passing trend.

“I am wary and have not yet concluded that we have seen a significant uptick that will be lasting,” Ms Yellen said in a press conference following the conclusion of a two-day policy meeting.

Shift

Overall, “you have seen a shift in most participants’ path of policy. That largely reflects a somewhat slower projected path for global growth,” Ms Yellen said. “The US economy has been very resilient in the face of shocks ... That is important.”

Interest rates will move higher if the Fed’s baseline forecast proves accurate, she added, “but proceeding cautiously will allow us to verify” that the economic recovery remains on track.

In its policy statement, the Fed noted the risks still emanating from overseas, which Ms Yellen said included renewed signs of weakness in Japan and Europe, and the ongoing slowdown in China. After months of volatility on global markets coupled with continued steady domestic economic growth, the Fed’s statement struck a half-empty half-full tone that reflected the broad difference within its ranks.

Reuters