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Fed is to leave rates alone now but to hike later in year

WASHINGTON (AP) — The Federal Reserve is all but sure to leave interest rates unchanged this week, although steady economic growth and inflationary pressures are likely to keep the Fed on a path toward further rate hikes later this year.

The central bank is meeting as its board is undergoing a makeover, being reshaped by a group of new appointments made by President Donald Trump. The newcomers generally appear supportive of the cautious stance the Fed has taken on rates since the Great Recession ended.

Despite Trump’s complaints during the presidential race that the Fed was aiding Democrats in keeping rates ultra-low under President Barack Obama, his choices for a chairman and for other slots on the Fed’s board have been moderates rather than hard-core conservatives who would favor a faster tightening of credit.

The Fed does seem inclined to continue raising rates modestly this year in response to the country’s steadily improving economy and to keep inflationary pressures under control. Economic growth remains solid, and most inflation gauges show annual price increases finally moving close to the Fed’s 2 percent target level. But few analysts expect any aggressive increase in the pace of rate hikes. Most foresee either two or three additional increases in the Fed’s benchmark rate by year’s end, coming after an earlier hike in January.

As Jerome Powell, Trump’s hand-picked new Fed chairman, said at a news conference after the central bank’s most recent meeting in March, “We’re trying to take the middle ground, and the committee continues to believe that the middle ground consists of further gradual increases in the federal-funds rate.”

Bond investors are signaling that they expect a pickup in U.S. inflation, having bid up the yield on the 10-year Treasury note last week above 3 percent before the yield settled just below that by week’s end. A year ago, the 10-year yield was just 2.3 percent.

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