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Fed Maintains Interest Rate at 0.25%, Downgrades GDP Forecast

The Federal Open Market Committee made no changes to its benchmark lending rate on Wednesday, as policymakers noted only moderate expansion in economic activity since the end of the first quarter.

“[E]economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat,” read the official date statement.

As expected, the Federal Reserve held its target for the overnight rate at 0 percent to 0.25 percent, unchanged since December 2008. The minutes of this month’s policy meetings will be released in July.

“Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors,” read the official rate statement on Wednesday.

Like in the previous statement, the Fed acknowledged that the federal funds rate may remain at record lows even after employment and inflation approach target levels.

“The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the statement also showed.

The Fed also released a revised summary of economic projections covering GDP, inflation and employment. GDP forecasts were revised down to 1.8 percent to 2 percent this year from 2.3 percent to 2.7 percent in March. The outlook on core PCE inflation was unchanged at 1.3 percent to 1.4 percent. The unemployment forecast was revised to 5.2 percent to 5.3 percent from 5 percent to 5.2 percent in March.

The downward revision to GDP takes into account a disappointing first quarter that saw the economy contract 0.7 percent annually.

Pressure to begin lifting interest rates has eased somewhat this year, as the markets have watched several key economic indicators deteriorate. On Monday the Federal Reserve said industrial production declined in May, as manufacturing output continued to sputter amid weak international demand.

A stronger US dollar has been partly to blame for the economy’s recent weakness. The US dollar index, a trade-weighted average of the dollar’s performance, is up around 19 percent since July 2014. The index was up by as much as 26 percent earlier this year.

The dollar index was down 0.1 percent to 94.90 immediately following the FOMC press release.

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