At the end of its monetary policy meeting, the American central bank unanimously decided to maintain the objective of its ‘fed funds’ at…
(Boursier.com) — At the end of its monetary policy meeting, the American central bank unanimously decided to maintain the objective of its ‘fed funds’ at 5.25%-5.50%. In the press release accompanying its decision, the Fed did not specify a timetable for a potential rate cut, while officials of the institution expressed their concerns about the persistence of inflation. : The President of the Fed, Jerome Powell, recalled that the bank was determined to bring inflation back to its objective of 2%. However, he noted “progress” and “ruled out the possibility of a further increase in rates”…
The Fed boss also stressed that American labor markets were “normalizing”, citing the latest data published today, before adding cautiously: “It will probably take more time for us to be sure that inflation returns to its target of 2%.
Lack of progress
In the press release accompanying its monetary decision, the Fed indeed mentioned the “lack of progress” in reducing inflation, while several data have cooled investors in recent months… The American central bank reiterated its approach based on the data, Jerome Powell explaining that “the indicators will have to tell us if the terminal rate is reached”… “We are focusing on the duration during which monetary policy will have to be maintained at a restrictive level”, Jerome further explained Powell, stressing that monetary policy was indeed at a restrictive level.
“I expect to see inflation decline this year, although I am less confident about it,” he added…
Great resistance of the labor market
The American central bank also spoke of the great “resistance” of labor markets: “We see a fairly consistent slowdown in the pace of wage growth, but there is still a way to go,” noted Jerome Powell. The Fed has a dual mandate relating to inflation and unemployment. This second objective is once again being monitored by the monetary policy committee, after a period during which inflation had its full attention, the Fed boss further clarified. It would take a “significant” deterioration in employment to convince the institution to change its monetary policy outlook, he said.
A matter of time
Recalling that American growth remained “strong” and that he did not see a risk of ‘stagflation’, characterized by low growth and high inflation, Jerome Powell stressed that the Fed had “the luxury of being able to be patient” on its rates. He also stressed that the American elections would not influence the establishment’s decisions…
The Fed finally announced a reduction in the redemption ceiling for US Treasury bonds from June 1, which will go from the current $60 billion to $25 billion. “This will reduce the risk of stress on the monetary markets,” explained Jerome Powell. The shift will slow the pace at which the Fed’s balance sheet shrinks, with the volume of assets held by the central bank hitting a record $9 trillion in 2022 to absorb the shock of the COVID pandemic. If such a decision was expected from the markets, uncertainty remains over the date of the announcement…
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