US Fed keeps rates unchanged as global economy weakens

28 Jan 2016


The US Federal Reserve at its meeting on Wednesday decided to keep interest rate unchanged in view of the global economic and financial developments and an uptick in the US economy, although it said the central bank is "closely monitoring" global economic and financial developments.

''Given the economic outlook, the committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 per cent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 per cent inflation,'' Federal Open Market Committee (FOMC) stated.

The FOMC, which earlier met in December, had suggested that labour market conditions had improved further even as economic growth slowed late last year. Since then, a range of recent labour market indicators, including strong job gains, points to some additional decline in underutilisation of labour resources, the committee stated.

Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further, the Fed committee said, adding, however, that net exports have been soft and inventory investment slowed.

Inflation has continued to run below the committee's 2 per cent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months, it noted.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

The committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen.

Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 per cent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. 

FOMC said it is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

''In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realised and expected economic conditions relative to its objectives of maximum employment and 2 per cent inflation,'' it added.

The committee expects the federal funds rate to remain, for some time, below levels that are expected to prevail in the longer run and that economic conditions will evolve in a manner that will warrant only gradual increases in rate.

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