Fri, May 03, 2019 - Page 10 News List

Fed sees no reason to alter rates

GROWTH EXPECTED:The Fed’s main concern was ‘muted’ inflation that has been falling short of its 2% target, and can no longer be blamed on falling energy prices


US Federal Reserve Chairman Jerome Powell speaks at a news conference following a closed two-day meeting in Washington on Wednesday.

Photo: Reuters

The US Federal Reserve on Wednesday held interest rates steady and signaled little appetite to adjust them any time soon, taking heart in continued job gains and economic growth, and the likelihood that weak inflation is to edge higher.

“We think our policy stance is appropriate at the moment. We don’t see a strong case for moving it in either direction,” Fed Chairman Jerome Powell told a news conference following the end of the central bank’s two-day policy meeting.

“I see us on a good path for this year,” he added.

Fed policymakers said that ongoing economic growth, a strong labor market and an eventual rise in inflation were still “the most likely outcomes” as the US expansion nears 10 years.

“The labor market remains strong... Economic activity rose at a solid rate” in the past few weeks, the Fed said in a policy statement a day after US President Donald Trump called on it to cut rates by 1 percentage point and take other steps to stimulate the economy.

The Fed also trimmed the amount of interest it pays banks on excess reserves to 2.35 percent from 2.4 percent in a bid to ensure that its key overnight lending rate — the federal funds rate — remains within the target band.

The chief concern flagged in the policy statement was the “muted” level of inflation, which continues to fall short of the Fed’s 2 percent target.

The statement suggested that the decline in inflation might be more persistent than expected and was no longer to be blamed simply on falling energy prices.

Data showed a measure of underlying inflation running at 1.6 percent, which would be a problem if it meant households and businesses had doubts about the economy’s strength and were less willing to spend and invest.

Powell told reporters that the decline in so-called core inflation was likely mostly due to transient factors and predicted that it would rise back to the 2 percent target.

“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,” he said.

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 2.5 percent.

Last year, the Fed raised rates four times and, as late as December last year, had anticipated further rises in borrowing costs this year.

Early this year it halted its tightening campaign on concerns about weak data in the US and abroad.

Wednesday’s decision was unanimous, a sign that the Fed remains steady in its pledge to keep interest rates unchanged until incoming economic data provide a compelling reason to do otherwise.

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