Fed holds rates steady and sees 'solid' economic gains

Fed holds rates steady and sees 'solid' economic gains

Barkin also voted at the meeting as he is a voting member this year of the Federal Open Market Committee, the panel of Fed board members and regional bank presidents who set interest rate policies for the central bank. As inflation failed to meet the Fed's 2-percent target, futures markets priced in fewer hikes - and to a lower ending point - than thought possible when Yellen took over.

At Janet Yellen's final meeting as chair Wednesday, the Fed kept its key short-term rate in a still-low range of 1.25 to 1.5 percent.

Several Fed policymakers have said they expected the tax changes, which include an estimated US$1.5 trillion in corporate and individual tax cuts, to provide an economic lift by boosting business and household spending.

Dr Yellen will hand over the Fed chairmanship to Mr Jerome Powell, who will be sworn in on Feb 5. The unemployment rate stood at 4.1% in December, and Fed officials do not expect it to fall much further. "They do want to at least confirm the market's expectations for a March rate hike", said Tom Simons, chief money market economist at Jefferies. That fits with the Fed's forecast for three interest rate increases this year.

While inflation has remained muted through 2017, the year ended on a strong note for consumption as US consumers spend the most last month in six years. With the United States government injecting added fiscal stimulus in the form of tax cuts and higher federal spending, and asset prices arguably starting to look overvalued, some analysts predict the Fed under Mr Powell will have to assert itself more aggressively.

The policy statement issued Wednesday made few changes from December to officials' economic outlook and affirmed a solid outlook for USA growth.

Keeping rates where they are lets the Fed pause before it changes its leadership.

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Some economists are wondering whether the Fed will remove the word "roughly" from its statement that the "near-term risks to the economic outlook appear roughly balanced".

With home prices on the rise, supply continues to be tight and mortgage rates accelerating, things are beginning to look precarious.

Yellen's 14-year tenure at the Fed ends this Saturday. "We are the only central bank in the world that has successfully started the reduction" in the bond portfolio.

Equity markets are torn between buoyant economic growth and double-digit company earnings, and the possibility that US and euro zone central banks will tighten policy faster than expected, which is pushing up bond yields.

The S&P 500 posted 34 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 82 new highs and 48 new lows.

Jerome Powell testifying before the Senate Banking, Housing, and Urban Affairs Committee in November on his nomination to become chairman of the Federal Reserve. But the decision to hold steady in January, while widely expected, underscored that the Fed still regards the economic expansion as fragile and in need of assistance.