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Federal Reserve keeps interest rates unchanged, Chair Yellen signals one hike by year end

The central bank also cut its 2016 growth forecast to 1.8 percent, down from 2.0 percent in June. Photograph: (AFP)

WION Washington, DC, United States Sep 22, 2016, 02.08 AM (IST)
Sluggish economic growth in the second quarter forced the Federal Reserve to keep its benchmark interest rate unchanged for the sixth straight meeting on Wednesday. 

The central bank kept its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent. 

Fed Chair Janet Yellen said US growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.

"We judged that the case for an increase has strengthened but decided for the time being to wait," Yellen told a news conference. "The economy has a little more room to run."

Yellen said the Federal Open Market Committee has to thread the needle between stifling growth with a premature increase and allowing the economy, feeding on a decade of easy money, to get away from them.

But the two-meeting showed deep divisions between the policymakers, with three of the 10 arguing for a rate rise now. 

While some displayed confidence the economy would continue to grow through the second half, others said they need to see more sign of strength in the economy. 

The central bank cut its 2016 growth forecast to 1.8 percent, down from 2.0 percent in June, saying there were some persistent weak signs in the economy. 

It also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

The Fed strongly signalled it could still tighten monetary policy by the end of this year as the labour market improved further and the inflation picked up. 

Yellen said she expected one rate increase this year if the job market continued to improve and major new risks did not arise.

Analysts said the Fed certainly leaned toward a December hike but nevertheless left open the possibility of not taking any rate action before 2017.

The next policy meetings of the US Federal Reserve are scheduled in early November and mid-December.

(WION with inputs from agencies)
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