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article imageUS Fed leaves key interest rate unchanged, highlights strong economy

By AFP     Aug 1, 2018 in Business

The US Federal Reserve kept the benchmark lending rate unchanged on Wednesday but stressed the strength of the economy and labor markets, a signal rate increases are ahead.

Financial markets already expect an increase in the key interest rate in September but the Fed's word choice will be sure to encourage expectations for a fourth hike in December.

Economists scrutinize every word of the Fed's statements for clues about the next move, so the changes are significant, especially coming amid low unemployment, hefty monthly job gains and surging growth in the second quarter.

The clear signal that the Fed will continue its gradual rate increases is unlikely to please President Donald Trump, who publicly chastised the central bank last month, saying policy was undercutting his efforts to juice the economy.

The central bank's policy committee said "economic activity has been rising at a strong rate," since the last meeting in June as the job market continues to strengthen.

In the statement in June, the committee described the economy as growing at a "solid rate."

The statement also noted household spending had "grown strongly," while it last described the status as having "picked up."

The Fed once again said it expected to continue "further gradual increases" in the overnight lending rate it charges to banks.

That will remove stimulus from the economy but is consistent with continued economic growth and job gains while keeping inflation near the Fed's two percent target over the medium term, the statement said.

The vote to hold rates unchanged for now was unanimous and comes after the economy grew 4.1 percent in the April-June quarter, while inflation has crept up just above two percent and wages at long last are beginning to accelerate.

Economists do not expect the US economy to continue to expand at the same pace for the rest of the year and the outlook is clouded by Trump's trade confrontations with multiple countries.

The Fed did not mention the trade tensions in the statement but cited it in the discussions in June as a factor that could undermine strong business confidence and investments.

The exchange of tariffs has led to rising prices for goods like steel and aluminum, while many firms continue to struggle to find workers.

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