Federal Reserve policy makers acknowledged Wednesday economic growth slowed during the winter months, “in part reflecting transitory factors,” hinting interest-rate increases may not happen until later in the year. The Fed also said it expects growth to resume at a “moderate pace.”
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The new statement comes after the central bank dropped the term “patient” from its previous policy statement in March. The move effectively signaled the Fed would hold off raising rates until its June meeting at the earliest.
Data released through the first quarter, including weak employment and housing-market data, has played a part in pushing the Fed’s timeline for its first rate-hike.
“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, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate,” the Fed’s statement read.
The central bank also kept the range for its key short-term interest rate, the Federal Funds rate, at 0%-0.25%.
The statement came just hours after the Commerce Department’s latest read on U.S. economic growth from the first quarter. GDP increased a marginal 0.2% in January, February and March, down sharply when compared to the 2.2% growth rate in the final three months of 2014, and below expectations for growth of 1% for the quarter.
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The White House reacted to the GDP numbers by saying it was “likely affected by notably harsh winter weather” in the quarter. It also said U.S. exports “continue to be restrained by the global growth slowdown.”
Exports have been hit by the strong U.S. dollar gains this year, which began to pull back in mid-March. Oil prices have risen in the past month, but are still down significantly over the past year, a 50% discount to last summer’s prices. That combination has been a mixed bag for the economy, and has weakened consumer spending in particular.
Concerns of a potential economic slowdown were raised again earlier this month when jobs numbers fell well short of expectations. The Labor Department reported 126,000 new non-farm payroll jobs were created in March. The unemployment rate remained at 5.5%. The April jobs report will be released next Friday.
Central bankers have been reluctant to raise interest rates too quickly. When rates go higher so will the cost of buying big-ticket items such as homes and cars, forcing some consumers to back off those purchases. It will also make it more expensive for businesses to borrow money for expansion and investment in new capital, which could impact hiring.
The Fed has said it won’t raise interest rates until it meets its dual mandate of full employment and price stability, which it defines as an unemployment rate in a range of 5.2%-5.6% and inflation at around 2%. The unemployment rate has reached that threshold but inflation has proven more problematic.
The FOMC policy action was unanimous among voting members.