US Federal Reserve keeps interest rate unchanged


US stocks edged higher while the dollar and Treasury yields fell on Wednesday after the Federal Reserve held interest rates steady and said inflation had "moved close" to its target.

The Fed ended its latest policy meeting by leaving its key short-term rate unchanged at 1.5 percent to 1.75 percent, the level it set in March after its sixth rate increase since December 2015. However, he added that CIBC is expecting a move, as the US economy continues to expand.

The Fed's preferred measure of inflation soared 1.9 percent in the 12 months through March, the biggest increase since February 2017, after increasing 1.6 percent in the year through February, the U.S. Commerce Department reported.

Royce Mendes, senior economist at CIBC World Markets, said that the Federal Reserve's statement does not provide much guidance for a June rate hike.

The statement released after the meeting, however, showed Fed's confidence over inflation, acknowledging that core inflation rate has moved close to the central bank's 2-percent target.

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"This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments", the Committee said in its statement.

It added that job gains have been strong and the unemployment rate has stayed low. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. And some Fed watchers said they interpreted the statement to suggest that the central bank foresees four hikes for 2018, up from the three it predicted in March. A look at the wording should ease at least some fears that Jerome Powell is just wanting to raise interest rates just for the sake of raising interest rates. Economists expect the Fed to nudge rates higher in June. It also means the Fed would be comfortable with allowing inflation to run above 2%, since it's not a ceiling. Ahead of the statement, some investors were nervous it might sound more hawkish on policy tightening after recent concerns about rising inflation.

The Fed's decision to leave its benchmark overnight lending rate in a target range of between 1.50 percent and 1.75 percent was unanimous.

Many on Wall Street think the economy is accelerating so quickly that the Fed will have to hike rates three more times in 2018 to keep the economy from overheating. Fed policymakers had flagged the potential negative impact of the conflict in recent public comments, but adopted a wait-and-see attitude.