The Federal Reserve (Fed) has decided to keep its policy interest rate unchanged within the range of 5.25-5.50%, the highest level in 23 years, in line with expectations.
Washington According to the announcement from the Fed, the decision to keep the interest rate stable was made unanimously.
The statement noted that recent indicators suggest that economic activity continues to expand at a solid pace.
The statement conveyed that employment gains remain strong, and the unemployment rate continues to stay low, while inflation has fallen over the past year but remains high.
It was added to the statement that progress towards the Federal Open Market Committee’s (FOMC) 2% inflation target has not been achieved in recent months.
The statement emphasized that the Committee believed that risks to achieving its employment and inflation goals had balanced better last year. It also highlighted that the economic outlook is uncertain, and the FOMC continues to be extremely cautious about inflation risks.
The statement stated that the federal funds rate target range was kept at 5.25-5.50%, and any adjustments to the interest rate would be based on incoming data, evolving outlook, and balance of risks.
Balance Sheet Reduction Pace to Be Slowed from June The announcement mentioned that the Fed would continue to reduce its holdings of Treasury securities and securities by maintaining the pace of monthly purchases at $25 billion from June onwards, down from $60 billion, to slow down the balance sheet reduction pace.
It was stated in the announcement that the cap on reducing the mortgage-backed securities portfolio would be maintained at $35 billion per month, and principal repayments exceeding this cap would be reinvested in Treasury securities.
Powell Signals Interest Rates Could Stay Higher Than Expected Following the Fed’s decision to keep the policy interest rate unchanged within the range of 5.25-5.50%, Fed Chair Jerome Powell held a press conference.
Powell noted that while inflation had declined significantly last year, the labor market remained strong. However, he emphasized that inflation was still very high, and there was no guarantee of further progress in lowering inflation, and the future trajectory remained uncertain.
Powell emphasized their commitment to reducing inflation to 2%.
Pointing out that the FOMC decided today not to change the interest rate and to continue reducing assets, albeit at a slower pace, Powell stated that the restrictive stance of monetary policy was exerting downward pressure on economic activity and inflation, and that the risks to the bank’s employment and inflation goals were balanced.
“However, it has been observed in recent months that progress has not been made towards our 2% inflation target, and we continue to be extremely cautious about inflation risks,” Powell said.
“We do not anticipate lowering the interest rate until there is greater confidence that inflation is sustainably moving towards 2%,” Powell reiterated.
Powell highlighted the uncertainty of the economic outlook, stating that they had not seen sufficient evidence of progress towards lowering inflation so far this year. He said, “As I mentioned before, data on inflation have come in above expectations. It is likely that it will take longer than expected to gain such a high level of confidence.”
Powell emphasized that they were prepared to maintain the current target range for the policy interest rate as long as necessary and were also prepared to respond to unexpected weakening in the labor market.
Powell reiterated that the bank’s position on monetary policy was in a good position to deal with risks and uncertainties to achieving its goals and would continue to make decisions from meeting to meeting.
Powell Emphasizes Elections Won’t Affect Interest Rate Decisions Stating that the focus of policy is how long monetary policy will remain restrictive, Powell said, “I don’t think the next policy move will likely be a rate hike.”
Powell emphasized that convincing evidence would be needed to raise interest rates to lower inflation and that delaying rate cuts might be appropriate if inflation were to become more persistent and the labor market remained strong.
Powell stated that he did not know how long it would take to gain confidence in the reduction of inflation and that when that confidence was achieved, rate cuts would be included.
Powell emphasized that the Fed would continue to make decisions independently of the upcoming U.S. presidential elections; otherwise, negative consequences could arise.
No Change in Interest Rates in 6 Consecutive Meetings Starting to raise interest rates in response to high inflation in 2022 after completing asset purchase operations, the Fed has made 11 interest rate hikes since March 2022, increasing the interest rate by a total of 525 basis points.
The bank’s policy rate reached the highest level since 2001 with the range of 5.25-5.50% due to these increases.
With its latest decision, the Fed kept the policy interest rate unchanged in 6 consecutive meetings. The bank last raised interest rates by 25 basis points in July 2023.
Inflation in the U.S., after reaching its highest level since 1981 with an annual rate of 9% in June 2022, exceeded expectations with an annual rate of 3.5% in March.
source: aa.com.tr/ prepared by Melisa Beğiç