WASHINGTON (REUTERS) – The Federal Reserve held interest rates steady on Wednesday (May 1) as policymakers took heart in continued US job gains and economic growth and held out hope that weak inflation will edge higher.
“The labour market remains strong… economic activity rose at a solid rate” in recent weeks, the US central bank said in a policy statement a day after President Donald Trump called on the Fed to cut rates by a full percentage point and take other steps to stimulate the economy.
Fed policymakers said the economy was in good shape as it stands, with ongoing job and economic growth, and an eventual rise in inflation, still “the most likely outcomes” as the US expansion nears its 10-year mark.
At its two-day meeting, the Fed also trimmed the amount of interest it pays banks on excess reserves to 2.35 per cent from 2.4 per cent in an effort to ensure its key overnight lending rate, the federal funds rate, remains within the current target band.
The chief concern flagged in the policy statement is the currently “muted” level of inflation, which continues to fall short of the Fed’s 2 per cent target. The statement suggested that a recent decline in inflation may be more persistent than expected, and was no longer to be blamed simply on falling energy prices.
The most recent data showed inflation running at around a 1.5 per cent annualised rate, which would be a problem if it meant that households and businesses had doubts about the economy’s strength and were less willing to spend and invest.
Between that and a weaker global economy, the Fed reiterated it would be “patient” in deciding on any further changes to its overnight benchmark lending rate, which it left in a range of 2.25 per cent to 2.5 per cent.
There was no indication in the Fed’s policy statement on Wednesday that either a rate cut or hike is in the offing anytime soon as policymakers weigh ongoing economic growth and low unemployment against the tepid rate of price increases.
The Fed raised rates four times in 2018 and, as late as December, had anticipated further rises in borrowing costs this year. Early this year, it halted the tightening campaign on concerns about weak data in the United States and abroad.
Fed Chairman Jerome Powell is scheduled to hold a press conference at 2.30pm EDT (2.30am on Thursday, Singapore time).
The federal funds rate is the amount banks charge each other for overnight loans, and is the rate the Fed targets as its main way of controlling other borrowing costs in the economy. It neared the upper end of the target range last week, prompting the change in the interest paid on excess reserves.
The policy 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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