Fed shakes off disappointing economic data

The Federal Reserve believes the U.S. economy has slowed down, but the central bank is showing no sign of slowing plans to raise interest rates.

The latest policy update from the Fed acknowledged the economy slowed at the beginning of 2015 and job gains have “moderated. It also noted household spending declined, even as personal incomes rose and consumer sentiment remained high.

{mosads}But it does not appear as if those changes are leading to any dramatic swings from the Fed’s plan to raise rates sometime this year for the first time in nearly a decade. In its policy statement, the Fed said that despite the slowdown in job and economic growth, it still expects the economy will continue to expand “at a moderate pace.”

Earlier Wednesday, the Commerce Department reported that the U.S. economy only grew 0.2 percent in the first three months of 2015, well below the 1 percent anticipated by economists. And earlier this month, the Labor Department reported that only 126,000 jobs were created in March, disrupting a steady trend of strong growth on the labor front.

But the Fed said Wednesday the slowdown in economic growth was partly due to winter weather and other “transitory factors.” And when it comes to jobs, there remains an “underutilization of labor resources,” suggesting there is untapped growth still to be had in the job market.

All that said, the Fed reiterated its stance that it would keep interest rates near zero, as it has since the financial crisis, and would evaluate a raft of incoming data to determine the right time to finally hike rates.

Market reaction was muted following the release of the Fed’s policy update.

The recent slowdown seen in economic data has led many analysts to believe the Fed will not raise rates at its June meeting. The central bank had already ruled out a rate increase at the April meeting, making June the next potential opportunity.

Now many are turning their attention to the Fed’s September meeting, which will be followed by a press conference from Fed Chairwoman Janet Yellen. The Fed does meet in July, but without a subsequent meeting with the press where Yellen could further flesh out the Fed’s thinking.

While Yellen has said a meeting with accompanying press conference should not be seen as a prerequisite for action, the Fed has yet to take significant monetary policy action without a ensuing press conference since adopting the practice in 2011.