Fed Says Business Investment and Jobs Improved While Slow Growth Is Likely to Be Transitory

The Federal Reserve's latest policy meeting will be pored over by investors hoping for clues about the central bank's plans for interest rates
AFP/ Karen Bleier

The Federal Reserve left its interest rate target unchanged at its May meeting, saying it would continue to aim for an overnight borrowing rate between 0.75 percent and one percent.

The Fed’s statement noted several sources of strength in the economy. The Fed described job growth since March as “solid” and noted that unemployment had declined. The Fed also modified its description of business spending. After the March meeting, the Fed had sounded tentative about business spending, writing: “Business fixed investment appears to have firmed somewhat.” The May statement dropped the tentative language in favor of a more emphatic statement: “Business fixed investment firmed.” No more “appears to have” or “somewhat.”

The Fed doesn’t appear worried about the slow pace of economic growth in the first three months of the year, saying that the slowdown is “likely to be transitory.” That’s Fedspeak for “we expect growth to rebound in the near term.”

“Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remain solid,” the Fed said in its statement.

The message from the statement is clearly that monetary policymakers are not disturbed by recent pieces of disappointing economic data. The Fed remains on track to raise interest rates at least two more times this year. It’s widely expected that the next hike could come at the Fed’s next meeting in June.