After its regular policy meeting on May 1, the Fed decided to keep its policy interest rate unchanged for the sixth consecutive time.
With this decision, the current US policy interest rate continues to fluctuate between 5.25 - 5.5%, the highest level in 23 years and will be maintained since July 2023.
Fed Chairman Jerome Powell speaks after a policy meeting on May 1, 2024. (Photo cut from Reuters clip)
The Fed’s decision to keep interest rates unchanged was in line with market expectations. The reason, as Fed Chairman Jerome Powell put it, was that “inflationary developments have slowed in recent months” while “the Fed remains committed to its 2% inflation target.”
The personal consumption expenditures (PCE) index - the Fed's preferred inflation gauge - rose to 2.7% year-on-year in March from 2.5% in February, well above the Fed's 2% target.
Meanwhile, labor costs in the first quarter also rose more than expected, adding to inflationary pressures.
Although short-term inflation expectations have increased, according to the Fed Chairman, long-term inflation expectations remain stable and it may take longer than previously expected for the Fed to feel confident about inflation.
Regarding the issue of interest rates, Mr. Powell once again emphasized that risks appear on both sides, maintaining high interest rates for too long can weaken the economy , but loosening too soon can push inflation up again.
According to Mr. Powell, the labor market is evidence that high interest rates are reducing labor demand and the Fed believes that over time, current interest rates will prove to be tight enough.
“ For the Fed to raise rates again, we need to see convincing evidence that current rates are not tight enough to bring inflation down to 2% ,” Mr. Powell emphasized.
The Fed chairman is said to have ruled out a rate hike at the next policy meeting in June, saying that “the next policy move will not be a rate hike. That is unlikely to happen.”
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