Fed leaves rates unchanged, says inflation near goal

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"That debate is going to be ongoing", said Michael Schumacher, director of rate strategy at Wells Fargo, after the Fed statement was released.

In a statement, the central bank said it expects "further gradual increases" in rates and says recent data show it's edging close to achieving its annual 2 percent target for annual inflation.

Inflation goal The Fed is clear that it's nearing its inflation target of 2 per cent over the medium term.

The Fed's latest "dot plot" now forecasts another two rate rises this year, although some analysts see three increases as possible.

On Wednesday, the Fed left its benchmark overnight lending rate in a target range of between 1.50 percent and 1.75 percent as had been widely expected.

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 US Commerce Department reported. Morgan Stanley Economist Ellen Zentner wrote in a research paper the Fed isn't anxious about an inflation overshoot just yet because inflationary pressures are not yet broad-based and "trend productivity plus inflation suggests the current pace of nominal wage growth is not inflationary". "But raising rates too quickly would increase the risk that inflation would remain persistently below our 2% objective".

Equally, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, while South Korean stocks tumbled 0.7 percent. Similarly, the UK/U.S. yield gap widened this week to the most since 1984. The last time we saw unemployment of 4% was during technological bubble at end of decade of years 1990.

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.

Despite signs that inflation is edging up, few analysts expect any aggressive pickup in rate hikes.

The central bank on Wednesday said it still expected growth to continue at a moderate pace and labour market conditions to remain "strong".

And RDQ Economics said the wording changes looked like "a signal that the Fed is not likely to react in a hawkish manner to inflation moving above 2 percent".

The single currency trimmed gains after Euro zone inflation unexpectedly slipped in April, while Euro zone bond yields hit two-week lows.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

No doubt this is because over the near term, inflation is accelerating to the upside: On a three-month annualized basis, core PCE inflation is rising at a 2.6 percent rate.

It kept rates unchanged: "T$3 he Committee chose to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent".

Committee members acknowledged that both inflation and core PCE (personal consumption expenditures) are now in range of the 2% target.

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