The U.S. Federal Reserve kept interest rates
unchanged on Wednesday and said it was "closely...
monitoring" global
economic and financial developments, signaling it had accounted for a
stock market selloff but wasn't ready to abandon a plan to tighten
monetary policy this year.
The
decision by the central bank's rate-setting committee was widely
expected after a month-long plunge in U.S. and world equities raised
concerns an abrupt global slowdown could drag on U.S. growth.
Fed
policymakers said the economy was still on track for moderate growth
and a stronger labour market even with "gradual" rate increases,
suggesting its concern about global events had diminished but not
squashed chances of a rate hike in March.
"The
committee is closely monitoring global economic and financial
developments and is assessing their implications for the labor market
and inflation," the Fed said in its policy statement following a two-day
meeting.
Wall Street fell after the
statement, with the Standard & Poor's 500 index closing down more
than 1 percent. Prices for U.S. Treasuries were mixed, while the dollar
extended losses against a basket of currencies.
In
an indication the Fed was taking global risks seriously, a prior
reference to the risks to the economic outlook being "balanced" was
removed from its statement. Instead, it said it was weighing how the
global economy and financial markets could affect the outlook.
"It
is clear that several FOMC members have become more worried," said Harm
Bandholz, an economist at Unicredit in New York, referring to the Fed's
rate-setting Federal Open Market Committee.
Four additional hikes
Shrugging
off economic weakness in China, Japan and Europe, the Fed last month
raised its key overnight lending rate by a quarter point to a range of
0.25 percent to 0.50 per cent and issued upbeat economic forecasts that
suggested four additional hikes this year.
Wall
Street's top banks, however, expect only three rate increases before
the end of the year, according to a Reuters poll released after the
Fed's statement on Wednesday. That was in line with expectations earlier
in January.
Investors are betting on one quarter-point rate increase in 2016.
Prices
for Fed funds futures on Wednesday showed traders had pushed back bets
for the next rate hike to July from June and modestly trimmed bets on a
March hike.
"The Fed has maintained
its composure in the face of global pressures," said Joe Manimbo, an
analyst at Western Union Business Solutions.
U.S.
exports took a hit last year, largely due to the impact of a strong
dollar, but consumer spending accelerated and overall employment surged
by 292,000 jobs in December.
The Fed
said on Wednesday that a range of recent labor market indicators,
including "strong" job gains, pointed to some additional firming in the
job market.
Oil prices have also
plummeted this year, which could keep U.S. inflation below the Fed's 2
percent target for longer, but the central bank said it still expects
the downward inflationary pressure from lower energy and import prices
to prove temporary.
Policymakers will
be able to sift through the January and February U.S. employment
reports before their next policy meeting in March.
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