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Noting slower economy, Fed appears no closer to a rate hike

Created: 04/29/2015 12:22 PM
By: By MARTIN CRUTSINGER

WASHINGTON (AP) — The Federal Reserve has downgraded its assessment of the economy after a winter in which growth nearly stopped. The Fed offered no sign that a rate increase might be coming soon.

On a day when the government said the economy barely grew in the January-March quarter, the Fed appeared no closer to raising its benchmark rate from a record low near zero. The Fed noted in a statement that growth slowed, business investment softened and exports declined.

It repeated previous language that it needs to be "reasonably confident" that low inflation will move back to its 2 percent target.

Earlier Wednesday, the government estimated that the economy grew at a barely discernible annual rate of 0.2 percent in the January-March quarter, battered by harsh weather, plunging exports and scaled-back energy drilling. It was the poorest economic showing in a year and was down sharply from a 2.2 percent annual growth rate in the fourth quarter.

In addition, U.S. employers added just 126,000 workers last month, the fewest since December 2013, breaking a 12-month streak of gains above 200,000. Gauges of manufacturing, housing and consumer spending of late have been weak to modest.

A sharp drop in oil and gasoline prices had been expected to help boost consumer spending. So far, it hasn't. The economic impact has been mainly negative — layoffs by oil-industry states and cutbacks in investments by energy companies.

Perhaps the biggest drag on the economy has been a sustained rise in the dollar's value. The stronger dollar has hurt American manufacturers by making their goods costlier overseas. It's also made cheaper foreign imports more competitive in the United States, thereby squeezing sales of U.S. companies and depressing profits. Lower import prices have helped hold U.S. inflation below the Fed's long-run target of 2 percent rate.

Still, economists expect the benefits of lower energy prices to boost consumer spending — and lift economic growth — the rest of the year. Economists say that many people who are now pocketing their savings from cheaper gas will likely step up their spending in the coming months.

Once the Fed does start raising rates, it's expected to do so very gradually. And the timetable for a rate hike could be delayed if growth doesn't pick up or if some crisis should erupt. One such threat could be a Greek debt default that spooks financial markets.

Whenever it decides to boost rates, the Fed is expected to signal the action well in advance.

(Copyright 2015 by The Associated Press. All Rights Reserved.)

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