WASHINGTON — The Federal Reserve is keeping its benchmark interest rate unchanged but says that inflation is climbing after years of being stuck below the Fed's target level.
The nation's central bank left its key short-term rate at 1.5 percent to 1.75 percent, the level it set in March after its sixth increase since December 2015. The Fed is gradually tightening credit to control inflation against the backdrop of a tight labor market and a pickup in consumer prices.
The Fed called out "strong labor market conditions" and a rise in business investment in its statement Wednesday. It says it expects "further gradual increases" in rates and says it's moving close to achieving its 2 percent target for annual inflation.
The core consumer price index—a measure of inflation that leaves out the most volatile items—rose at a rate of 2.11 percent in March, the first time in over a year it was over the 2 percent mark.
The next rate increase is expected in June. Some analysts think the Fed may signal then that it foresees four hikes for 2018, up from the three it.
But others foresee a continuation of the central bank's slow-and-steady approach. "Don't expect a policy reaction to high summer inflation rates," wrote Pantheon Macroeconomics Chief Economist Ian Shepherdson in a research note."[T]he Fed is telling markets that it won't over-react to a run of higher numbers, just as it didn't over-react to the run of five straight downside surprises last year."