The US Federal Reserve signaled new concerns about inflation by reaffirming that it needs more evidence that prices are cooling before cutting interest rates by the highest in two decades.
Authorities unanimously decided to leave the target range for the federal funds benchmark rate at 5.25% to 5.5% – where it has been since July last year – following a series of data that pointed to persistent pressures on prices in the US economy.
Monetary authorities also took into account an important measure of wage growth that showed that pay had accelerated in the first quarter, reversing recent declines. Any acceleration in wage growth could make monetary authorities anxious due to concerns that rapid income gains, coupled with higher asset prices, will support strong consumer spending and give businesses the ability to pass on higher prices.
Wednesday’s statement reiterated that job gains “remained strong” with a low unemployment rate, while the economy expanded at a “solid pace.”
In their policy statement released on Wednesday, the authorities highlighted the “lack of further progress” towards reducing inflation in recent months. Earlier this year, the authorities stated that the risks to achieving their goals of low inflation with a healthy labor market were “evolving towards a better balance”, but the authorities amended their statement to suggest that this improvement had stalled.
The decision to keep the federal funds benchmark rate in a range between 5.25% and 5.5% was widely expected. Investors also expect the Fed to hold its ground at its next meeting in mid-June, after higher inflation readings dampened prospects for a series of cuts aimed at anticipating an economic slowdown.
The Fed quickly raised rates from near zero in 2022 to combat inflation that has reached a 40-year high. Authorities raised fees at 11 of 12 meetings held last July.
The federal funds rate influences other borrowing costs throughout the economy, such as mortgages, credit cards, and business loans. Higher rates have also increased the cost of the U.S. government’s interest payments on more than $27 billion in public debt. These expenses are on track to surpass defense spending this year.
Due to the dollar’s role in the world economy, higher interest rates also affect the world economy, especially in developing countries.
Democrats worry that higher rates are undermining consumer sentiment and risking a slowdown ahead of November’s presidential election. Some economists, meanwhile, have said that government spending, including on infrastructure and subsidies for clean energy investments, is complicating the work of reducing inflation by adding more fuel to economic activity.
2024-05-01 22:22:45