Today, the Federal Reserve of the United States of America held interest rates steady and indicated little appetite to change them any time soon, taking heart in the continued job gains and economic growth and the possibility that weak inflation will edge higher.
In a press conference following the end of the latest two-day policy meeting of the central bank, Jerome Powell, the Fed Chairman, said: “We think our policy stance is appropriate at the moment; we don’t see a strong case for moving it in either direction.”
Overall, he stated: “I see us on a good path for this year.”
Fed policymakers disclosed that ongoing economic growth, a strong labour market, and an eventual surge in inflation were still considered to be “the most likely outcomes” as the expansion of the United States comes near its 10-year mark.
In recent weeks, the Fed said in a policy statement: “The labour market remains strong … economic activity rose at a solid rate.” It came a day after President Donald Trump called on it to lower rates by a full percentage point and take other steps to stimulate the economy.
The Fed also reduced the amount of interest that it pays banks on excess reserves to 2.35 percent from 2.40 percent in an attempt to ensure that the federal funds rate, its key overnight lending rate, remains to be within the current target band.
The main concern that was flagged in the policy statement was the currently “muted” level of inflation, which continues to fall short of the 2 percent target of the Fed. The statement suggested that a recent drop in inflation may be more persistent than expected, and was no longer to be criticised simply on falling energy prices.
The most recent data revealed a measure of underlying inflation running at 1.6 percent, which would be considered a problem if it meant that businesses and households had doubts regarding the strength of the economy and were less willing to spend and invest.
Powell informed reporters that the decline in so-called core inflation was likely mostly because of transient factors, and he predicted that it would rise back to the 2 percent target.
He stated: “If we did see inflation running persistently below (the target), that is something that we would be concerned about and something that we would take into account in setting policy.”
However, for now, the Fed chief said that low inflation allows the central bank to be “patient” in deciding on any further changes to its overnight benchmark lending rate, which it left in a range of 2.25 percent to 2.50 percent.