Fed Keeps Interest Rates Steady, Maintains Its ‘Patient’ Policy Stance

US President Donald Trump speaks at the Oval Office of the White House in Washington US

President Trump tweeted on Tuesday that the Fed "has incessantly lifted interest rates, even though inflation is very low" and should reduce them by 1 percentage point to help the United States economy "go up like a rocket".

The change isn't likely to be economically meaningful and instead reflects a technical effort to improve the way the Fed's policy decisions are implemented in overnight money markets. Typically, central banks hike interest rates to keep prices in check when the economy grows.

Traders took that as an indication that low inflation would not necessarily lead to a rate cut.

Despite rising market speculation of a rate cut, the Fed is unlikely to cut interest rates anytime soon, analysts said, for fear that it looks like the central bank is caving to political pressure. "It really has no implications for policy", said Powell. This entailed a small cut in that rate to 2.35 per cent, in this hopes that this will counter an upward drift in the effective federal funds rate.

"What was news to me was the emphasis on transitory factors holding back inflation", said Michael Gapen, chief USA economist at Barclays Plc. Powell's comment came after the Federal Open Market Committee (FOMC) voted unanimously to maintain the benchmark rate in a range of 2.25 percent - 2.5 percent.

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"We think our policy stance is appropriate at the moment; we don't see a strong case for moving it in either direction", Fed Chairman Jerome Powell said in a press conference following the end of the central bank's latest two-day policy meeting.

The Fed declared that the economy is advancing at a "solid" rate overall, but it also observed that household spending and business investment decelerated in the first quarter, and inflation is now "running below" its 2 per cent target.

"Powell tried to temper expectations for a preemptive cut in rates tied to inflation". If Powell can't find the right language to explain the Fed's moves, people might draw a number of conclusions, from assuming that the Fed has capitulated to the President's whims, to predicting that the economy is in trouble.

With first-quarter earnings season winding down, investors are looking for fresh catalysts such as U.S.

"So ultimately, they will have to begin raising rates again to keep inflation contained".

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The meeting came after the Department of Commerce reported last week that the US economy expanded at an annual rate of 3.2 percent in the first quarter, mostly driven by strong exports and private inventory investment. Britain's FTSE 100 index was close to flat at 7,384 after the Bank of England held its main interest rate at 0.75% at its first policy meeting since the Brexit delay was granted.

It did however trim a key rate which it pays banks who leave excess reserves, from 2.40pc to 2.35pc, in a bid to ensure its lending rate stays within the current target range.

You may remember what happened next: Stocks tumbled, with investors concerned not just that higher interest rates would discourage consumers from buying homes and businesses from borrowing to invest, but that the Fed was blasé about signs of global economic weakness and appeared intent to march on with higher rates, even if they became inappropriate given economic conditions.

After raising the key lending rate four times past year, the Fed voted unanimously to keep it in a range of 2.25-2.5%.

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