Fed cuts US economic growth forecast

Economic growth rates in the United States have been slashed by the Federal Reserve after officials took into account the sour start to the year, when severe winter weather crippled activity in major centres.

After a two-day policy meeting, the central bank cut its forecasts for economic growth this year to between 2.1% and 2.3% from an earlier projection of around 2.9%.

But the Fed's forecasts for 2015 and 2016 were unchanged and it expressed confidence the recovery was on track.

New Zealand's economic growth for the 12 months ended March was 3.8%, and growth was expected to peak at 2.8% in the year ended June.

US stocks rallied, gaining the most in four weeks, after Fed chairwoman Janet Yellen signalled there was no hurry to raise interest rates from their current near-zero rate.

Dr Yellen's policy statement changed little from the one issued after the meeting in April, repeating that interest rates would remain near zero ''for a considerable time'' after the bond buying ended.

Unemployment remained elevated, despite recent job growth, and Dr Yellen noted the Fed's preferred measure of inflation was still running below its 2% target.

Craigs Investment Partners broker Chris Timms said the Fed hinted at a slightly faster pace of interest rate increases next year but suggested benchmark borrowing costs in the long-run would be lower than previously indicated.

As widely expected, the Fed pushed ahead with its plans to wind down one of its main stimulus programmes - reducing its monthly asset purchases from $US45 billion ($NZ51.7 billion) to $US35 billion.

Among 16 individual rate-rise projections, the median interest rate was tipped to reach 1.125% by the end of 2015.

Officials projected a slightly more aggressive path of interest rate hikes for the following year, with the year-end median placed at 2.5% versus 2.25% in March.

''Importantly, Fed officials also lowered their projections for long-term interest rates, a potential sign of reduced confidence in the economy's long-run potential,'' Mr Timms said.

 

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