If anything can shake the Fed's 2017 Rate path, it's these risks

After a two-day meeting, the Federal Open Market Committee has opted to keep the federal funds interest rate as-is-a surprise to many, given the widely held assumption that not one, but two more rate hikes were on the agenda for 2017.

The decision to leave the target federal funds rate unchanged in a range of 0.75 per cent to 1 per cent was unanimous and in line with forecasts. Job gains were described as "solid", as were the fundamentals underpinning the continued growth in consumer spending.

United States economic growth slowed to an annual rate of just 0.7 per cent in the opening quarter of the year, and core inflation has subsided marginally even as the jobs market continues to progress towards full employment.

The U.S dollar was trading higher against a basket of other major currencies, ahead of the much-awaited Federal Reserve policy statement later in the day. But a subsequent hike isn't seen until at least December, when markets see a 52% chance of an increase in the Fed's benchmark rate. Fed policymakers have longed warned that low or near-zero interest rates would limit the central bank's tools to handle a financial crisis.

"Also, if high levels of USA equities are being watched by investors, then any potential drop could potentially influence the Fed's action too".

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USA central bankers were unusually explicit in their statement, indicating that a disappointing first quarter, in which the economy grew at an annualised rate of 0.7 per cent, would not knock the committee off its plan to raise rates two more times this year after a hike in March. Jobs growth also slowed sharply in March but the unemployment rate dropped to a near 10-year low of 4.5 percent.

Most analysts expected there to be no action on rates this month. In the 12 months through March, the index increased 1.8% after rising 2.1% in February.

Most economists have expressed optimism that the economy is strengthening in the current April-June quarter, fueled by job growth, higher consumer confidence and stock-market records.

"Fortunately‚ with markets already pricing in a June rate hike at 66%‚ the Fed doesn't have to work as hard to manage expectations as it did earlier this year and so any signal may be fairly subtle‚" Oanda market analyst Craig Erlam said. The minutes to this policy meeting, which are due to be released May 24, could provide more information on this.

Although the economy grew at a sluggish pace in the first three months of the year, Fed leaders don't seem spooked by it. First quarter GDP was quite weak and now all eyes will be on Friday's non-farm payrolls.

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