For Now, the Fed Will Hold Interest Rates Steady

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For Now, the Fed Will Hold Interest Rates Steady

Last week, the Federal Reserve opted to hold its key interest rate in place, but left the door open for a potential hike in June. The move came after a two-day meeting, where the Fed’s policymaking committee dismissed concerns about the economy’s slow pace of growth during the first three months of the year, calling the slowdown “likely to be transitory,” as reported by the New York Times.

The committee also referred to the strengthened labor market in the United States, which they claim has persisted despite economic slowdowns. The Fed further cited job gains over recent months, and a decline in the unemployment rate, while noting that consumer spending “rose only modestly” during the first quarter of the year.

As a result, the benchmark rate was left to range from 0.75 percent to 1 percent—for now, that is. According to Michael Gapen, a former Fed staffer and current chief U.S. economist at Barclays, only a “proof fundamental weakness” in the economy could potentially derail a June hike. Instead, the Fed’s strategy, Gapen said, appeared to target “cumulative progress” in the economy, and a “soft patch” wouldn’t be what throws its rate-hike prospects off course.

The Fed’s next meetings are scheduled to take place on June 13 and 14. In the meantime, last week’s move seemed to make few impacts on financial markets. The Standard & Poor’s 500-stock index closed at 2,388.13, losing 0.13 percent that day. Additionally, the 10-year Treasury benchmark rose from 2.29 percent to 2.32 percent.

During the first quarter of this year, the U.S. economy grew at a meager annual rate of 0.7 percent. It’s important to also note that some economists claim the government often reports “sluggish growth” earlier in the year, due to its struggle to make “adequate seasonal adjustments.” At present, investors place the chances the Fed will raise June rates at around 70 percent.