Fed likely to leave rates alone but signal more hikes coming

Fed likely to leave rates alone but signal more hikes coming

The US dollar edged lower against the euro and eased off a one-month high against the yen on Monday after weak USA factory and inflation data did not boost expectations for a June interest rate hike from the Federal Reserve.

USA stocks dipped Wednesday as media and health care companies took losses.

Many economists also discounted the weak first quarter, which was held down by lower consumption, as an anomaly frequently seen in the first three months of the year. The Australian dollar reversed earlier gains to trade at $0.7425 in the late United States session, after briefly popping up to $0.7466.The Aussie gained on Tuesday after the Reserve Bank of Australia (RBA) kept rates unchanged at a record low of 1.5 percent at its policy meeting and sounded a touch more upbeat about global growth, reinforcing expectations of a steady rate outlook.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. Wednesday's statement repeated sentiment that the Fed will raise rates gradually. He also cited US first-quarter gross domestic product growth data last week that showed the USA economy grew at its weakest pace in three years.

Meanwhile, 12-month inflation has held close to the Fed's two per cent target, even while some price measures declined in March.

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Markets reacted accordingly, with futures traders bidding up the chances of a June interest-rate increase to nearly fully price it into the market.

Barclays economists said although the Fed did not take action, "it did something just as important: In the face of weak data, it signaled that it would maintain its normalization path this year". USA gold futures dropped 0.6 percent to, 241.20 an ounce.

Europe's STOXX 600 index lost 0.04 percent to slip from a 20-month high, and MSCI's gauge of stocks across the globe shed 0.17 percent. "That bodes well for consumer spending in the second quarter", Reuters said.

Yet the economy has repeatedly picked up speed in the spring and summer, and Wednesday's statement shows the central bankers expect the same pattern to reoccur. Private sector wages recorded their biggest increase in 10 years in the first quarter.

Overall consumer spending in March was constrained by a 0.7 percent drop in purchases of long-lasting goods such as automobiles. Still, we saw gains in personal incomes, by 0.2 percent, in March; following a 0.3 percent increase in February. A cold snap boosted demand for heating, lifting spending on services by 0.4 percent.

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