Federal Reserve keeps interest rates steady -- June hike likely

The Federal Reserve opted to keep interest rates steady on Wednesday, while giving signals more rate rises are coming.

The Fed's policy-making committee kept its benchmark rate target at 0.75 percent to 1 percent. The rate is a benchmark for consumer debt like mortgages and credit cards. 

The Fed is in its first cycle on increasing rates since 2006 -- a quarter percentage point boost each in December 2015, December 2016 and March. Investors, by 67 percent, predict the next hike will come next month, according to Fed futures data from the CME Group.

The statement that the Fed issued did express some misgivings that "economic activity slowed" as "household spending rose only modestly." Indeed, first quarter growth in gross domestic product advanced just 0.7 percent in the first quarter. But the Federal Open Market Committee (FOMC) -- the bank's rate-setting panel -- said the factors restraining growth are likely to fade over the rest of the year. Policy makers also didn't back off its determination to bring gradual increases, if the data warrant them.

"The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further and inflation will stabilize around 2 percent over the medium term," the FOMC said in its statement. 

Investors widely expect the next hike to come when Fed officials gather for their next two-day meeting on June 13-14.  

Since the Great Recession, weak first quarters have been the norm, with the economy gaining strength later on, noted Greg McBride, chief financial analyst for Bankrate.com. "It's a tradition, like the Super Bowl," he said. And wages and job growth remain fairly healthy.

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. If his stimulus plans become reality, the Fed likely would speed up the tempo of rate increases because inflation could increase and the economy would be better able to withstand higher borrowing costs.

Economic data has been mixed lately. The economy grew at a sluggish 0.7 percent annual pace in the first quarter as consumer spending almost stalled. The Fed also is watching Friday's release of data on employment for April -- job growth slowed in March, with employers adding a meager 98,000 positions. The unemployment rate dropped to a near 10-year low of 4.5 percent. 

  • Larry Light

    Larry Light is a veteran financial editor and reporter who has worked for the Wall Street Journal, Forbes, Business Week, Money, AdviceIQ and Newsday.