US Fed keeps rates unchanged, says inflation will 'move up'

(MENAFN- AFP)The Federal Reserve left the benchmark interest rate unchanged Wednesday after its first policy meeting of 2018, but said it expects inflation to move up this year, a possible signal of faster rate increases ahead.

While price measures have remained below the central bank's two percent target, the Fed said, "Inflation on a 12-month basis is expected to move up this year."

That change of language will fuel expectations that the Fed could raise the key lending rate more than the expected three times this year.

In December, the committee said inflation was "expected to remain somewhat below two percent in the near term."

The change of tone will certainly reinforce the view among analysts that the first rate increase of 2018 will come in March. The debate will be over how many more steps the central bank will take this year, especially if the tax cuts approved in December stimulate the economy.

In the last meeting of Fed Chair Janet Yellen's tenure, the policy-setting Federal Open Market Committee saw the normal annual rotation as four new regional Fed bank presidents become voting members.

Many analysts predicted the shift would give a more hawkish tilt to the Fed's deliberations given the new voters tend to be more concerned about inflation threats.

In December, the FOMC increased the key lending rate to 1.25-1.5 percent, the third increase last year. The rate affects all types of credit from mortgages to car loans.

The Fed's quarterly economic projections also released last month indicated the central bank is likely to raise the federal funds rate three times in 2018 and once in 2019.

But the minutes from the December meeting revealed the conflicting views about how fast to raise rates to stay ahead of price pressures at a time when strong job creation has pushed unemployment down to a 17-year low of 4.1 percent.

Other than new phrasing on inflation, the FOMC largely repeated its analysis of the economic outlook, noting "the labor market has continued to strengthen and that economic activity has been rising at a solid rate."

And the statement repeated that "further gradual adjustments" in rates would allow continued moderate economic growth and strong labor conditions.

Fed Governor Jerome Powell, tapped by President Donald Trump to replace Yellen, will be sworn in as chair on Monday, the Fed said in a statement.



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