Federal Reserve says US weakness is only 'transitory'
Officials at the world's most influential central bank have said that a slowdown in growth and hiring at the start of the year reflected 'transitory factors'
7:15PM BST 29 Apr 2015
A weaker economy at the start of the year will not stop the Federal Reserve from raising US interest rates, although the timing of the first hike is now more uncertain.
Officials at the Fed acknowledged slower growth over the winter, but said this was in part a reflection of "transitory factors", suggesting that policymakers are still moving towards lifting rates from their crisis level of near-zero.
The Federal Open Market Committee (FOMC), which decides on US monetary policy, said that "although growth in output and unemployment slowed during the first quarter, the committee continues to expect that ... economic activity will expand at a moderate pace".
Central bank watchers did not expect the FOMC to signal a change in direction this month, as Janet Yellen, the Fed chair, was not scheduled to hold a press conference alongside the committee's statement.
The Fed statement came as data showed that GDP had grown at an annualised rate of just 0.2pc in the first quarter, well below analyst expectations.
Officials agreed unanimously that it will only be appropriate to raise interest rates when the committee "has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2pc objective".
The FOMC statement reinforced the belief that the Fed will wait until at least September before deciding to raise its target rate, which has remained static at zero to 0.25pc since 2008.
Luke Bartholomew, of Aberdeen Asset Management, said: "Ugly GDP figures along with very lacklustre inflation mean that a June hike is all but off the table."
"Ms Yellen has made it abundantly clear that rates will only rise when the economy is strong enough to absorb it and we’re probably not there yet," he said.
The weak picture painted by the first-quarter GDP figures prompted many Wall Street institutions - including JP Morgan, Deutsche Bank and Bank of America - to cut their forecasts for second-quarter growth.
Disappointing labour market figures had also led to concerns that the US economy was running out of steam ahead of the FOMC meeting. Non-farm payrolls numbers for March showed jobs growth at its slowest pace since 2013, breaking a run of strong hiring gains.
The FOMC referred to the apparent weakness as a "moderated" pace of job gains, and acknowledged that the "underutilisation of labour resources was little changed".