Federal Reserve: US economic slowdown temporary

Janet Yellen Image copyright Reuters
Image caption Federal Reserve chair Janet Yellen has been optimistic about the US economy

The US Federal Reserve has said it expects a recent slowdown in the US economy to only be temporary.

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

But the US central bank said it expected growth to pick up again, and decided to keep a key interest rate on hold in a range of 0.75% to 1%.

The Fed has only raised interest rates three times in the last decade, most recently in March this year.

Most analysts expected there to be no action on rates this month.

But they were watching to see if policymakers would hint at a possible rate rise in June, despite recent weak economic data.

The central bank said it viewed "the slowing in growth during the first quarter as likely to be transitory" and still expected economic activity to "expand at a moderate pace".

Rate rise in June?

The statement, released after the Fed's May meeting, pointed to stronger business investment and downplayed modest growth in household spending.

Traders reacted by increasing the probability of a rate rise next month.

Ryan Sweet, senior economist at Moody's Analytics, said: "The Fed is communicating its mantra of gradual rate hikes. The next time they will likely raise rates would be June."

Brian Coulton, chief economist at Fitch Ratings, said: "There is nothing in here to change our view of two more rate hikes this year."

The Federal fund interest rate peaked in the early 1980s at nearly 20%.

But it has been at record lows since the financial crisis as central bankers sought to boost the economy.

More on this story