Federal Reserve keeps interest rates steady, hints at further hikes

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"The committee views the slowing in growth during the first quarter as likely to be transitory", the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington.

Even so, investors increased bets on a move in June after absorbing the Fed's sanguine assessment of the outlook and its encouraging observations on inflation, following data showing first-quarter economic growth of 0.7 per cent and monthly price declines in March.

The Fed kept interest rates unchanged at its two-day policy meeting on Wednesday and emphasized the strength of the labor market in its subsequent statement - a sign it was still on track for two more rate rises this year. This indicated that the U.S. central bank was not too concerned with the disappointing first quarter GDP data and signaled to markets that a June rate hike was still on the table.

The Fed didn't signal any change to its balance sheet policy.

While the United States central bank's decision to maintain its benchmark rate at a target range of 0.75%-1% was largely expected, the statement accompanying the decision was being closely watched for hints on its next move. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid.

Traders apparently took Wednesday's policy announcement to mean that the central bank was still firmly on course to hike rates again next month, pushing the market implied odds of a 25 basis point interest rate hike from the Fed at its 14 June meeting to 94% from roughly 70.7% beforehand.

If his stimulus plans become reality, the Fed likely would speed up the tempo of rate increases because inflation could increase and the economy would be better able to withstand higher borrowing costs.

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Minutes from the bank's March meeting showed the policy board was considering tightening monetary policy by sucking cash out of the financial system, which spooked investors early last month.

Meanwhile, 10-year Treasury yields rose close to 2.34% from around 2.30% late Wednesday.

GDP grew at an annual rate of 0.7% in the first quarter - the slowest rate since the first quarter of 2014.

The statement acknowledged the drop in the core PCE price index but the central bank retained their stance that inflation has been close 2% targets and is expected to reach the target over the medium term.

Activity in the United States service sector grew at a faster than expected rate in the month of April, the Institute for Supply Management revealed in a report on Wednesday. Only June, September and December include a press conference with Yellen.

Brent crude oil futures LCOc1 were down 32 cents at $50.47 a barrel by 0957 GMT, while U.S. West Texas Intermediate (WTI) futures CLc1 were also down 32 cents at $47.50 a barrel.