US Federal Reserve Chair Jerome Powell said it was prepared to maintain the current interest rate for “as long as appropriate” so as to align the inflation rate with its 2 per cent target.
The US Federal Reserve, in its latest monetary policy meeting, voted to leave the key interest rate unchanged at 5.25-5.50 per cent, keeping the policy rate unchanged for the sixth straight time on the trot.
During the COVID-19 pandemic, interest rates were near zero.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
“We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell said in his opening statement.
So far this year, Powell said the data has not given it that much confidence.
“In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected,” Powell added.
The US Fed Chair said that they know that reducing policy restraint too soon or too much could result in a reversal of the progress they have seen on the inflation front.
“At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment,” he argued.
Consumer price inflation in the US continued to trend down, though it remained above 2 per cent, and it a pain point for its central bank. In the 12 months through March, the inflation increased 3.5 per cent year-on-year, the highest in about 6 months. This followed a 3.2 per cent rise in February.
“Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective,” said the US central bank in its monetary policy statement.
The US Fed seeks to achieve maximum employment and inflation at a rate of 2 per cent over the longer run.
It does not expect it will be appropriate to reduce the rate until it has gained greater confidence that inflation is moving sustainably toward 2 per cent.
“The Committee is strongly committed to returning inflation to its 2 per cent objective,” the US Fed said.
Recently, rating agency Moody’s said it believes an interest rate cut during the US Federal Reserve’s June meeting is likely off the table given stubborn inflation in the country. This assertion by the global rating agency then came soon after the US reported more than-expected inflation figures in March.
