Fed likely to leave rates alone but signal more hikes coming

The Dow Jones industrial average added 8.01 points to 20,957.90

The Federal Reserve said on Wednesday it believes the recent slowdown in USA growth is likely to prove temporary as it stayed on course for a further increase in short-term interest rates as soon as June. Eastern time. The moves might have reflected the Fed's dual message that while now isn't the time to resume raising rates, the economy remains durable enough to withstand further hikes soon.

The Fed also is watching whether President Donald Trump can push through Congress his initiatives on tax cuts and federal spending, which Mr. Trump seeks to bolster economic growth.

The statement makes it very clear that the Fed does not take the reported slowdown in Q1 growth seriously.

Such nerves over China come at a time when growth in Europe seems to be solidifying and the Fed has finally begun to deliver on long-disappointed market expectations of a cycle of interest rate rises.

The market's expectations for a hike in June jumped to 97.5% after the FOMC announcement, up from about 69% earlier on Wednesday, according to the World Interest Rate Probability data provided by Bloomberg.

USA jobless claims declined to 238,000 in the latest week from 257,000 previously and continuing claims fell to a fresh 17-year low which continued to suggest firm labour conditions with workers finding it easier to re-enter the labour market.

Inflation had been edging higher, but the so-called core PCE price index increased 1.6 percent in the 12 months through March, the smallest gain since last July.

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Although the Fed acknowledged that consumer spending "rose only modestly", it added that the "fundamentals underpinning" consumption "remained solid". Business fixed investment firmed.

The personal spending report showed the price index tied to consumer purchases fell 0.2 percent in March from the prior month, the first decline since February 2016.

One reason for the Fed to stand pat this week is that even though the job market has shown steady strength, the economy itself is still growing in fits and starts.

"The Committee views the slowing in growth during the first quarter as likely to be transitory", the Fed said in its post-meeting statement, which was not followed by a press conference since these occur only at every other of the central bank's eight yearly meetings. "Near-term risks to the economic outlook appear roughly balanced". The global economic picture has also brightened somewhat.

The weak US auto sales figures could make market participants wary of actively buying the dollar against the yen for now, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

However, the committee said it expects an expansion in economic activity, at a moderate pace, in the medium term.

The Fed's policy-making committee kept its benchmark rate target at 0.75 percent to 1 percent. However, now through the summer, the Indian market could take a breather, he added.

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