US Fed cuts view on expected pace of rate increases

US rate-setters kept policy unchanged when they met on Wednesday, but revised their estimates for the likely medium-term pace of policy tightening considerably lower.

The target range for the Fed funds rate was kept at between 0.25% and 0.50%, as expected.

However, the members of the US Federal Reserve's Board and its regional bank chiefs said they now expected the central bank's main policy rate, known as the Fed Funds rate, to finish 2018 at 2.4%, down from the 3.0% level they had estimated in March.

In its post-meeting statement, the Federal Open Market Committee, the US central bank's policy-making body, conceded the pace of improvement in the jobs market had slowed while economic growth, on the other hand, appeared to have picked up.

The Federal Reserve also noted that household spending was stronger and the rate of unemployment had declined, although investment had been soft.

Inflation, on the other hand, had continued to run below the monetary authority's longer-run objective of 2.0%.

All FOMC members supported Wednesday's decision.

Commenting on the FOMC's statement and the economic and interest rate forecasts submitted by Fed policy-makers, Barclays's Michael Gapen and Rob Martin said: "a somewhat constructive FOMC statement that keeps the door open for a rate hike in the July-September period was, in our view, more than offset by a significant flattening in the expected policy path.

"Furthermore, although the median member is still calling for two rate hikes in 2016, six members expect only a single rate hike this year. We believe Chair Yellen belongs to the latter group."

Gapen and Martin's own baseline outlook continued to call for just one interest rate hike from the Fed in 2016.

They also took note of how one Fed rate-setter was now projecting no further interest rate hikes from the end of 2016 and over the remainder of the forecast horizon.

"This is not our baseline assumption, but we raise the point to say that Fed policy feels bi-modal as labor market data have historically sent a strong signal about expansions and contractions."