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Fed lowers economic outlook but stays mum on rate plans

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Fed lowers economic outlook but stays mum on rate plans

The Federal Reserve lowered its economic outlook Wednesday after a harsh winter chilled the U.S economy’s growth, reducing the odds for an initial interest rate hike as soon as the Fed’s June meeting. In a statement after a two-day meeting the Fed gave no clear signal of when it plans to raise its benchmark interest rate for the first time since 2006 but policymakers have indicated they expect to act this year.AP JACKSON HOLE-ANNUAL CONFERENCE A USA WY

The Fed statement was released at 2 p.m. ET. As of 2:55 p.m. ET, the Dow Jones industrial average was down about 55 points, or 0.3%, to 18,056 and the Standard & Poor’s 500 index dropped 5 points, or 0.3%, to 2110. The Nasdaq composite was down 17 points, or 0.3%, to 5038. Yields on 10-year government bonds sprang above 2%.

With that optimistic view, the Fed didn’t rule out a June rate increase, as it virtually foreclosed the chances of an April hike in its statement last month. Still, its assertion that temporary factors were only part of the reason for last quarter’s slowdown suggests the central bank may want to hold off a few months before hoisting the target range for its federal funds rate, which has been near zero since the 2008 financial crisis. The Fed’s statement noted that job growth “moderated” and household spending declined in recent weeks, though inflation-adjusted incomes “rose strongly, partly reflecting earlier declines in energy prices.”

Business investment, however, “softened” and exports declined, the statement said. The Fed added that inflation continued to run below the Fed’s target, “partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports.” Fed policymakers said they expect inflation “to rise gradually toward 2% over the medium-term as the labor market improves further and the transitory effects” of low energy and import prices dissipate. A strong dollar has hurt manufacturers’ exports and the plunge in oil prices has led energy companies to slash investment.

The government said Wednesday morning that the economy grew just 0.2% at an annual rate in the first quarter, down from 2.2% in the October-December period and below the modest 1% pace expected by economists. Meanwhile, inflation remains well below the Fed’s annual 2% target, with the government reporting that the Fed’s preferred measure, which excludes food and energy costs, rose 0.9% last quarter. That’s the smallest increase since 2010. And employers added just 126,000 jobs in March, compared to average monthly gains of 269,000 the prior 12 months.