The Federal Reserve has left its benchmark interest rate unchanged but signaled that it expects to resume raising rates gradually to reflect a healthy job market and economy.
At Janet Yellen’s final meeting as chair Wednesday, the Fed kept its key short-term rate in a still-low range of 1.25 per cent to 1.5 per cent. It said in a statement that it expects inflation to finally pick up this year and to stabilize around the Fed’s target level of 2 per cent. In its previous statement, the Fed had predicted that inflation would remain below its target rate.
The Fed also indicated that it thinks the job market and the overall economy are continuing to improve.
“Gains in employment, household spending and business fixed investment have been solid,” its statement said.
The central bank said it expects the steadily strengthening economy to warrant further gradual increases in its benchmark rate. Those additional rate hikes would likely lead, in time, to higher rates on some consumer and business loans.
The Fed’s policy statement was approved by a 9-0 vote.
Ms. Yellen has led a cautious approach to rate increases in her four years as chair, and Jerome Powell, who will succeed her next week, has indicated he favours a similar approach.
“The Yellen era ends with a yawn,” said Gus Faucher, chief economist at PNC. “Yellen’s tenure has been largely successful, with the unemployment rate falling to a 17-year low.”
The Fed modestly raised its key rate three times in 2017, and most economists expect the Powell-led Fed to do so at least three additional times this year beginning in March. Mr. Powell has been a Yellen ally and among the Fed’s consensus-builders in 5 years on the central bank’s board.
The unemployment rate is just 4.1 percent, and the economy expanded at a solid 2.6 percent annual rate in the October-December quarter, helping lift growth for all of 2017 to a decent 2.3 percent.
Synchronized growth in major regions across the world has helped energize the U.S. economy. And the sweeping tax overhaul that President Donald Trump pushed through Congress last month is expected to further support U.S. growth.
The Fed’s next scheduled policy meeting in March, when most economists foresee the next rate hike, will be the first time that Powell is scheduled to hold one of the Fed leader’s quarterly news conferences.
Powell to be sworn in on Monday
In a separate statement Wednesday, the Fed said Mr. Powell would be sworn in on Monday. Last week, the Senate confirmed Trump’s nomination of Powell to be Fed chairman.
Mr. Powell, a lawyer and investment manager by training, will be the first Fed leader in 30 years not to hold a Ph.D. in economics. Mr. Trump chose Mr. Powell for the post rather than offer Ms. Yellen a second term despite widespread praise for her performance as chair.
With Ms. Yellen’s departure, the seven-member Fed board will have four vacancies. Marvin Goodfriend, a conservative economist, has been nominated by Mr. Trump for one of the vacant board seats. The President has yet to make nominations for the others.
