FED keeps interest rates unchanged, warns of 'lack of improvement' in inflation

US interest rates remain at 23-year high

As expected by the market, the US Federal Reserve (FED) decided not to raise interest rates on May 1 (US time) after a two-day policy meeting. The reference interest rate in the US is currently around 5.25-5.5% - the highest level in 23 years. In the previous 5 meetings, this agency also kept interest rates unchanged.

FED Chairman Jerome Powell announced to keep interest rates unchanged for the 6th time (Photo: Reuters)

The Fed also warned that recent disappointing inflation readings could prompt a rate cut in the near future.

Fed Chairman Jerome Powell said prices rose faster than expected in the first quarter of 2024, so it will take policymakers “longer than previously thought” to feel comfortable that inflation will continue to decline to the expected 2% level.

Mr. Powell said the US central bank still believes that current policy rates are putting enough pressure on economic activity to keep inflation in check and that the agency would be willing to wait, even if inflation “moves sideways.”

Illustration photo.

The ability to cool inflation is not sustainable

The Fed chairman forecasts inflation will fall this year, but “my confidence in that is lower than reality,” Mr. Powell said.

The Fed has raised interest rates 11 times since March 2022 to curb inflation. US inflation has slowed significantly from a 40-year peak in the summer of 2022, but recent figures show a "lack of improvement".

"Inflation is too high and the cooling is not sustainable. It may take some time before we feel more confident in this process," Mr. Jerome Powell said at a press conference on May 1.

During his press conference, Mr. Powell said there were several scenarios that could lead to a rate cut, including inflation cooling again as the economy and the job market stabilize, a scenario that played out last year.

The personal consumption expenditures (PCE) price index was 2.7% in March - up from 2.5% in February. The Fed's target is 2%.

Stocks were mixed after Fed Chairman Jerome Powell said there was "no chance" of further interest rate hikes. The DJIA closed up 0.2% on May 1. The S&P 500 and Nasdaq Composite both fell 0.3%. Meanwhile, the world spot gold price rose to $2,317/ounce.

The Fed also announced that it would ease restrictions on the economy by slowing the pace of its balance sheet contraction. In addition to interest rates, this is also a tool to help them stimulate or cool the economy. Accordingly, from June, the Fed will let $25 billion in government bonds mature each month without buying them back. Previously, this number was $60 billion.

The Fed maintained its overall assessment of economic growth, saying the economy "continues to expand at a solid pace. Employment remains strong and the unemployment rate remains low."

According to VOV

Source: https://baolaocai.vn/fed-giu-nguyen-lai-suat-canh-bao-lam-phat-thieu-cai-thien-post383555.html