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 The Fed's statement put in place a meeting-by-meeting approach on
the timing of its first rate hike since June 2006, making such a
decision solely dependent on incoming economic data.
The data, however, have been getting worse. Just hours before the
Fed's statement, the U.S. government reported that first-quarter
gross domestic product came in much weaker than expected.
The central bank acknowledged that growth had slowed in the winter
months, a dimmer assessment of the economy than its view in March.
And while it said the poor performance was in part due to transitory
factors, it pointed to soft patches across the economy, in a sign it
may have to hold off hiking rates until at least September.
"The committee anticipates that it will be appropriate to raise the
target range for the federal funds rate when it has seen further
improvement in the labor market and is reasonably confident that
inflation will move back to its 2 percent objective over the medium
term," the Fed said in its statement, following a two-day meeting of
its policy-setting committee.
U.S. Treasury yields added to earlier gains and short-term
interest-rate futures contracts dropped slightly after the Fed
statement before paring the losses. Futures traders continue to bet
the Fed will wait until December to raise rates, and give an October
rate rise just a 46 percent chance, according to CME FedWatch.
The Fed's guidance on Wednesday differed little from its last
meeting. But unlike its March policy statement, this time the
central bank did not effectively rule out hiking rates at its next
meeting.
That still makes a June move a possibility, though the data would
have to sharply improve in the next two months for that to happen.
'A LITTLE DOVISH'
The economy grew at an anemic 0.2 percent annual rate in the first
quarter, the Commerce Department reported early on Wednesday, well
below economists' expectations for 1.0 percent growth and the fourth
quarter's 2.2 percent expansion.
In its statement, the Fed said the pace of job gains had moderated,
a downgrade of its view last month and a reflection of the poor
March employment data. It also noted that the underutilization of
labor resources was little changed - it had used the term "improved"
in its March statement.
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"On net it seems to be a little dovish given the
weaker-than-expected activity we have seen," said Gennadiy Goldberg
of TD Securities.
The Fed's view of inflation changed only slightly, as it hinted at
the recent stabilization of oil prices and a leveling off of the
U.S. dollar by saying "inflation continued to run below" its
longer-term objective. At its last meeting the Fed had described
inflation as having "declined."
"We all know the Fed would love to start normalizing rates, but the
simple fact is, the data does not warrant that action right now,"
said Wayne Kaufman, chief market analyst at Phoenix Financial
Services in New York.
There were no dissents in the Fed's policy statement on Wednesday.
After the release of the statement, the Fed held a conference call
with reporters to test a new conference call system that increases
its flexibility to explain an interest rate hike in months when one
of its quarterly press conferences is not already scheduled.
(Reporting by Michael Flaherty; Additional reporting by the New York
markets team and Ann Saphir; Editing by David Chance and Paul Simao)
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