The US Federal Bank has expressed optimism over the performance of the economy.
US Central Bank Positive on the Economy, Holds Interest Rates
During its first meeting with President Trump, the US central bank continues to remain positive over the economy and agreed to maintain interest rates between 0.5% and 0.75%.
The Fed said that economic activity has continued to support a growing job market.
In a statement, the central bank said, “Business and consumer sentiment have improved lately.”
In December, the Fed increased its business interest rate by 0.25%, the second time in a decade.
One of President Trump’ s major election promises was to boost economic growth through deregulation, tax cuts and spending with the goal of increasing inflation.
Last month, Fed chairwoman Janet Yellen warned that central bank could be badly surprised on inflation if the rate hikes were not implemented fast enough, given that the economy was near full employment.
According to a statement on Wednesday, the central bank said inflation would increase to 2% over the medium term. However, it did not make any comment on the effect of the Trump administration on the economy.
In spite of the positive outlook, the central bank hinted that the Federal Open Market Committee, which is concerned with setting interest rates, would only hike rates gradually.
However, there was no indication of when interest rates may be raised. Investors were anticipating clear indications on when next interest rates would be raised and how many times this would happen this year.
Kully Surma, a UK based director at Charles Schwab said, “This is just the first FOMC meeting, seven more will be held this year. There are many opportunities for the Fed to increase interest rates throughout the year. It is likely that a rate rise will happen in March or June.”
She further noted that two rate hikes would be enough this year to mitigate concerns over inflation. Such a move would also not have a negative impact on the economy.
Dennis de Jong of UGX.com noted that there was still uncertainty over Trump’s policies and this could delay an interest rate hike.
He said, “Trump is still unclear on any solid plans and Yellen may have to wait much longer before she can pull the trigger.”
Last week, official reports showed that the US economy grew by just 1.9% in the fourth quarter of last year. This was certainly much slower growth than witnessed in the last quarter.
However, according to the central bank’s predictions, sentiments are looking more positive but the economy is only growing gradually.