United States stocks fell on Wednesday as investors digested a statement from the Federal Reserve, which left interest rates steady and said inflation had "moved close" to its target, while the dollar climbed late against a basket of currencies.
As expected, the central bank left its benchmark interest rated unchanged in a range of 1.5 percent to 1.75 percent - but it added language acknowledging the recent rise in inflation, which lays the groundwork for another rate hike (this year's second) in June.
The Fed, under the leadership of new chair Jerome Powell, faces a tricky path ahead as the central bank wants to encourage growth but not trigger a recession.
The Fed has a goal of 2% price inflation.
Last week, government economists estimated that U.S. gross domestic product grew in the first quarter of 2018 at an annual rate of 2.3%. Core PCE is the Fed's preferred measure of inflation.
In a statement released after the March meeting, the Fed expected the inflation will move up in coming months and to stabilize around the 2-percent target.
US dollar notes are seen in this November 7, 2016 picture illustration. Looking at US Treasury bond yields, the 10-year is now flat and yielding 2.973%.
A sharp drop after the open had pushed the S&P 500 and the Dow Jones Industrial Average below their 200-day moving averages, a key technical indicator of longer-term momentum. The wording is a new addition to the statement, though it has been mentioned several times by Fed officials in recent speeches. The Fed also removed a sentence from the March statement which said, "The economic outlook has strengthened in recent months". We think this further reinforces the case for rates not be hiked at next week's MPC meeting. In its March statement, the Fed indicated business investment had "moderated" from a strong fourth quarter.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. "It is expected to run near the Committee's symmetric two per cent objective over the medium term".
In view of realized and expected labor market conditions and inflation, the Committee chose to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. Instead, it reiterated that the central bank would continue to gradually tighten the monetary policy further.
Policy makers aim to keep inflation near target while ensuring maximum sustainable employment and preserving a USA economic expansion that is now the second longest on record. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.