Federal Reserve Keeps Interest Rates At Record Low

The US Federal Reserve has kept its target interest rate at a record low at the end of a two-day policy meeting in Washington, DC.The US central bank has indicated it will raise rates soon, as long as the US economy continued to grow.

Federal Reserve

But the timing of the increase remains uncertain.

It said the slow rate of growth in the first three months of 2015 was due to “transitory factors”, and that economic expansion would continue.

Earlier on Wednesday, the US Commerce Department revealed that US economic growth in the first quarter had slowed to an annual rate of 0.2%, below expectations.

“There is nothing really new in the Fed statement,” wrote Marc Chandler, head of global currency strategy at Brown, Brothers, Harriman and Company in a note to clients.

“It formally recognizes that growth has slowed, but nothing beyond what various officials have already acknowledged.”

US markets fell after the statement was released, before recovering slightly.

September rise?

In a statement released at the conclusion of its meeting, the Fed said: “Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace.”

The Fed also decided to remove any specific references to calendar dates when discussing the timing of a rate rise, which could further confuse markets, who have often reacted badly to any hint of the end of cheap money in the US economy.

“The removal of the Fed’s time dependent forward guidance could be significant. It means that any meeting from now on could be the one when they announce that magic first rate rise,” said Aberdeen Asset Management investment manager Luke Bartholomew.

However, the sluggish growth figures suggest that that rate rise will not occur at the central bank’s June meeting. Many analysts are now eyeing September instead.

The central bank has kept rates at near zero percent since the financial crisis in 2008, when it cut rates to help boost the US economy.

Now that the US recovery is taking hold, Fed chair Janet Yellen and the rest of the central bank are eager to raise rates, out of fear that keeping them low for too long could lead to inflation.

However, figuring out the timing of that rate rise is difficult, particularly as the Fed does not want to raise rates too soon and risk hurting the rate of US growth.

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