By CentralBankNews.info
    The Federal Reserve left its benchmark federal funds rate at 0.75 – 1.0 percent, as widely expected, and signaled it still expects to raise the rate another two times this year as it said slower economic growth in the first quarter was “likely to be transitory” and economic activity will continue to expand at a moderate pace with gradual changes to its monetary policy stance.
     The U.S. central bank, which raised its rate by 25 basis points in March and forecast the rate would rise to 1.4 percent during the year, added the labor market had continued to strengthen even as growth slowed, with solid fundamentals underpinning growing consumption and investments by businesses firming.
     The Fed, which targets inflation as well as unemployment, also said inflation had been running close to its 2.0 percent objective although consumer prices, excluding energy and food, were somewhat below 2 percent.
     The Fed’s decision was expected after the economy slowed to annualized growth of only 0.7 percent in the first quarter of this year, down from 2.1 percent in the fourth quarter and below expectations of 1.1 percent. The deceleration was mainly due to weak consumption from lower auto sales and low home-heating bills from warm weather.
     The U.S. unemployment rate fell to a lower-than-expected 4.5 percent in March from 4.7 percent in February for the lowest rate since May 2007.
     The headline inflation rate eased to 2.4 percent in March from 2.7 percent while the core inflation rate dropped to 2.0 percent from 2.2 percent.
    “Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed,” the Fed said.
    The Fed maintained its view that the risks to its economic outlook were roughly balanced and it still expects economic conditions to warrant gradual increases in the fed funds rate, although it is likely to remain below its longer-run level for some time.
    In March the Fed forecast 2.1 percent economic growth this year, 2.1 percent in 2018 and 1.9 percent in 2019. The unemployment rate was seen averaging 4.5 percent this year and in 2018 and 2019 while inflation, as measured by the personal consumption expenditure, was seen at 1.9 percent this year and 2.0 percent in the following two years.
    The fed funds rate was projected to reach 1.4 percent at the end of this year, then 2.1 percent end-2018 and 3.0 percent at the end of 2019.
    The FOMC, the Fed’s policy-making arm, was unanimous in today’s decision in contrast to March when one member voted to keep the rate while the other nine members agree to raise the rate.
     In its statement, the FOMC reiterated that it was continuing to reinvest proceeds from its holding of debt, mortgage-backed securities and Treasuries, and expects to continue with this process “until normalization of the level of the federal funds rate is well under way.”
     However, minutes from the FOMC’s March meeting showed that discussions are under way on how and when to begin the process of shrinking the Fed’s $4.5 trillion balance sheet. 
    The assets were purchased by the Fed during three rounds of large-scale asset purchases, known as quantitative easing, to push down long-term borrowing rates in the wake of the global financial crises when short-term rates were slashed to effectively zero.
     In light of an improving economy and falling unemployment, the Fed began tightening its policy stance in December 2015 and has raised its rate three times since then by a total of 75 basis points, with the most recent hike in March.


The Board of Governors of the Federal Reserve System issued the following statement: