US Federal Reserve keeps rates on hold, watching global developments

The US central bank kept its main policy rates unchanged, as had been widely anticipated, with most pundits initially taking the view that the door to an interest rate hike come March, when its policy committee was next scheduled to meet, had been left open.

In its policy statement, the Federal Open Market Committee said it was "closely" monitoring global economic and financial developments.

"The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook."

Following its meeting in December, the Fed had only said that: "The Committee continues to monitor inflation developments closely."

"We think March is still a live meeting - Pantheon Macroeconomics"

Conditions in the labour market had improved further even as economic growth slowed and, while inflation continued to run below the FOMC´s 2% longer-run objective, survey-based measures of longer-term inflation expectations were little changed, the Federal Reserve added.

Some initial market commentary highlighted how the reference made by US rate-setters at their last meeting that they were reasonably confident about meeting their medium-term inflation target had been removed.

Nonetheless, rate-setters in the US once again said they expected to meet their target for prices in the economy, despite renewed falls in energy quotes.

"Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2% over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further."

Wednesday´s decision to keep the target range for the Fed funds rate at between 0.25% and 0.50% was unanimous.

Rate-setters in the US also downgraded their assessment of household spending and business fixed investment over recent months, saying that both increased at "moderate" rates, whereas in December they described them as having "increased at solid rates".

Economists weigh in

"We think March is still a live meeting, contingent on the data and the state of markets. Our base case remains a 25bp hike at the next meeting," Ian Sheperdson, chief economist at Pantheon Macroeconomics, said in a research note sent to clients after the announcement.

"The post-meeting statement sounded somewhat more cautious than it did at the end of last year [...] all options remain on the table, including a hike in March, [but] one has to acknowledge that the odds for a move at that meeting have declined," said Dr.Harm Bandholz, chief US economist at Unicredit Research.

Fed tweaks statement on Longer-Run Goals and Monetary Policy Strategy

To take note of, on Wednesday the Federal Reserve also made what Barclays described as "several small" modifications to its statement on Longer-Run Goals and Monetary Policy Strategy.

The Fed clarified that it viewed its inflation objective as 'symmetric' saying that the "committee would be concerned if inflation were running persistently above or below' its 2 percent objective".

James Bullard, the president of the St.Louis Fed dissented, as he believed the language used by the Fed "was insufficiently focused on expected inflation and deviations from the target," Barclays´s Michael Gapen pointed out in a research note sent to clients.