Federal Reserve Chair Janet L. Yellen waits to speaks at the Federal Reserve System Community Development Research Conference in Washington on March 23. (Cliff Owen/Associated Press)

The Federal Reserve left its influential interest rate unchanged at the conclusion of its two-day meeting in Washington on Wednesday, citing a recent slowdown in growth that it said was likely “transitory.”

A news release acknowledged that the economy has been expanding at a slower pace of late, though it said that the U.S. job market and other indicators of the economy's health continue to be strong. It added that the Fed expects the economy to “evolve in a manner that will warrant gradual increases” in its interest rate, the same language it has used in previous months.

Investors had widely been expecting the central bank to remain on hold this week, given that economic data has been somewhat weaker in the past month and that the Fed still has plenty of time to realize its plan of raising interest rates twice more this year. Markets are more confident of seeing a rate hike in June, when the Fed is scheduled to hold a news conference where it can provide more details on its decision.

Before Wednesday’s announcement, futures markets pointed to only a 4.8 percent probability of a rate hike in May, though a 67.4 percent probability of one in June. The Fed's voting members unanimously decided to leave rates unchanged this week, the release said.

In March, the Fed raised its interest rate by 25 basis points to a range of 0.75 percent to 1.0 percent, only the third such increase since it slashed interest rates to buoy the economy in the depths of the financial crisis.

Central bankers have also been given some breathing room by the Trump administration, which has not yet followed through on its more aggressive plans to boost the economy. President Trump came into office pledging to slash tax rates for individuals and corporations and boost infrastructure spending — policies that could have forced the Fed to move more quickly to head off inflation but which have instead been slow to materialize.

On Friday, the federal government will release highly anticipated figures on the number of new jobs created in the country in April. Economists will be watching the data closely to see whether lackluster reports on the economy that have emerged in the last month are evidence of a sustained trend.

Government data released last week showed that the U.S. gross domestic product, a broad measure of economic activity, grew at just 0.7 percent on an annualized basis in the first quarter, the slowest pace in three years. Federal figures on the number of new jobs created in March also fell far short of the high levels seen in January and February, while inflation measures remain below the Fed’s targeted rates.

In its release, the Fed mentioned that consumer prices, excluding energy and food, declined in March, as inflation continued to run somewhat below the central bank’s 2 percent target. It added that household spending has risen only modestly since its last meeting in March but that the fundamentals underpinning consumption growth still appear solid.

Most economists believe that the weaker readings constitute a temporary blip, due to seasonal measurement issues and the vagaries of spring weather. If the string of disappointing figures continues, however, that could persuade the Federal Reserve to hold off on raising rates while the economy strengthens further. The central bank has emphasized that the pace of rate hikes will hinge on the state of the economy.

“If we had a number this Friday like we had a month ago, I think people would start to seriously reevaluate the Fed outlook on policy,” said Vince Reinhart, chief economist at Standish Mellon. “A weak employment report would lead them to revise their outlook.”

Yet other analysts caution that raising rates too slowly also holds a risk. If the Fed does not move to head off inflation by raising rates gradually now, that could put it in a situation where it needs to hike rates more quickly later, a jarring transition for businesses and consumers.

“In our view, the U.S. economy has now reached full employment and is likely to overshoot meaningfully, a path that has often proven risky. From this perspective, the case for further tightening is strong,” Goldman Sachs analysts wrote in a note May 1.

U.S. stock markets opened slightly lower Wednesday morning, after approaching record highs in recent weeks.

Equity markets have surged since the election, in anticipation that the Trump White House would introduce measures to stimulate the economy. The administration has moved quickly to unwind Obama-era regulations on business, but bureaucratic requirements and a fractious Republican coalition in Congress have so far delayed measures such as tax cuts and infrastructure spending.

Consumer and business confidence remain high, but analysts say there is a risk these measures could begin to flag if more economic-friendly policies don’t emerge soon.

“We’re seeing is a greater level of skepticism,” said Greg McBride, chief financial analyst at Bankrate.com. “I think consumers, businesses and investors have shifted into show-me-the-money mode. They’ll believe it when they see it with regard to faster-economic growth, tax cuts and infrastructure spending.”

And if these policies fail to materialize, that could have more serious consequences beyond disappointing voters, McBride said.

“The risk is reality not matching up to expectations could lead to a notable pull back in the stock market and perhaps even in business and consumer spending,” McBride said. “There’s nothing on the immediate horizon that makes you think that growth is going to materialize in the near future.”

The White House has significant opportunity to influence the path of the Federal Reserve through appointments in the next year. Three seats are already open on the Federal Board of Governors, including the powerful regulator post of vice chair of supervision. The leading candidate has been Randal Quarles, a senior Treasury Department official during the George W. Bush administration who now runs a private investment firm.

In addition, the terms of the Federal Reserve's chair and vice chair, currently occupied by Janet L. Yellen and Stanley Fischer, respectively, will expire in early 2018.

Trump had been highly critical of Yellen during the campaign, accusing her of keeping interest rates low to benefit the Obama administration — charges Yellen fervently denied. But in an interview with the Wall Street Journal in early April, the president indicated that he might be open to keeping Yellen as chair.

“I do like a low-interest rate policy, I must be honest with you,” he said.

See also:

U.S. economy grew at sluggish 0.7 percent in first quarter of 2017

Federal Reserve likely to begin cutting back $4.5 trillion balance sheet this year

U.S. hiring slumped in March as employers added only 98,000 jobs