Fed fuels interest rate hike on "moderate" growth in US economy

Joe Hall
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Federal Reserve head Janet Yellen (Source: Getty)

The Federal Reserve has kept interest rates unchanged at a historic low of 0 to 0.25 per cent, but offered hope of an increase in short-term interest rates with positive statements about the US economy.

Read more: Why it’s not time to dump US equities - a Fed interest rate hike won’t drag down stocks

The Fed warned that when it does begin to hike rates "it will take a balanced approach" and cut its forecast economic growth for 2015 to between 1.8 per cent and 3 per cent after a weak start to the year.

In a statement it said:

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady.

Policymakers voted unanimously to keep rates at their near-zero levels, but suggested at a rise if inflation continues to creep towards its targeted two per cent and employment picks up.

Inflation remains low but the committee said it expects it to rise "gradually toward two per cent over the medium term as the labour market improves further".

In its updated forecasts, the Fed projects inflation to reach two per cent by 2017, and forecast unemployment for the year to come in at between 5.2 and 5.3 per cent.

The dollar fell marginally to $1.288 per euro following the announcement while the major US stock indexes moved up.

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