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Fed holds interest rates steady

Fed holds interest rates steady

NEW YORK — Today’s policy statement from the Federal Reserve managed a fairly balanced tone considering a number of soft data releases in recent weeks, RBC Economics reported.

The statement noted most significantly that a slowdown in first quarter gross domestic product, but also weaker-than-expected payroll and inflation readings for March were contributing to a softening of the economy.

The Fed explicitly noted that slower first-quarter activity is “likely to be transitory” and that growth should return to a moderate pace even as monetary policy stimulus continues to be gradually pared back, said Economist Josh Nye.

“It sounds like their take on Q1 growth was similar to ours: a slowdown in consumer spending appears anomalous given solid fundamentals, while other details were a bit more encouraging, including a pickup in business fixed investment,” he explained. “The statement made little mention of March’s disappointing payroll figure, simply noting that recent job gains have been solid on average and that the unemployment rate declined.

“The Federal Open Market Committee did, however, make note of softer core inflation in March, though we would add that about half of the dip in core PCE and CPI inflation reflected lower prices for mobile phone services, which is something policymakers would be expected to look through,” he added. “Nonetheless, it is fair to say that underlying inflation remains slightly below the Fed’s 2 percent objective.”

Aside from tweaks to the economic assessment, there were no notable changes in today’s policy statement, Nye explained.

“The committee reiterated their expectation that economic conditions will warrant a gradual removal of accommodation but gave no overt signal on the timing of the next hike,” he said.

“Our forecast assumes the next move will be in June; while we are encouraged by indications the Fed will look past the Q1 slowdown, we think the committee will want to see evidence of a pickup in economic activity before continuing their tightening cycle,” said Nye. “Data releases over the next six weeks supporting our call for GDP growth to rebound to 2.9 percent in Q2 would help firm up expectations for a hike at the June 13-14 meeting.”

SOURCE: RBC Economics press release

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About Greg Gerber

Greg Gerber is a freelance writer and podcaster who has been writing about the RV industry since 2000. He is the former editor of RV Daily Report.

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