ECONOMYNEXT – The US Federal Reserve kept its interest rate target unchanged saying growth has slowed, labour market was solid and but inflation was somewhat high.
“Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year,” the Fed said in its monetary policy statement.
“The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.”
Governors Michelle W. Bowman and Christopher J. Waller wanted to cut rates by 0.25 basis points and voted against the decision.
US President Donald Trump has criticized the Fed for not cutting rates. Trump himself was elected amid the inflation created by Fed and general public unhappiness, despite relatively low unemployment and in-migration, which is now being reversed by force.
The Federal Reserve has reduced is quantity tightening operations, and the US monetary base is also not shrinking unlike in the the Euro area.
The Federal Reserve as well as the ECB is operating an excess reserve regime, which led to high inflation not seen since un-anchored monetary policy of the 1970s.
There has been an uptick in credit from April, Federal Reserve data show, which may be due to working capital finance to hold more imported stocks amid the shock from Trump tariffs.
The full statement is reproduced below:
Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action were Michelle W. Bowman and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.
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