The Federal Reserve was back on the path of a hawkish monetary policy on Wednesday, adding a quarter point to US rates in July after a pause the previous month, as it pledged to be "patient but resolute" with inflation which it didn't expect to return to its 2% target till 2025
WASHINGTON (Pakistan Point News / Sputnik - 27th July, 2023) The Federal Reserve was back on the path of a hawkish monetary policy on Wednesday, adding a quarter point to US rates in July after a pause the previous month, as it pledged to be "patient but resolute" with inflation which it didn't expect to return to its 2% target till 2025.
Fed Chair Jerome Powell said rate cuts were also unlikely for another year at least as the central bank stayed razor focused in processing gross domestic product, labor, wage and consumer data to determine at any one point when there should be a pause or hike in rates.
"We will continue to make our decisions meeting by meeting based on the totality of the incoming data and their implications for the outlook for economic activity and inflation as well as the balance of risks," Powell told a news conference after chairing a meeting of the Fed's policy-making Federal Open Market Committee, or FOMC. "And given how far we've come, we can afford to be a little patient as well as resolute as we let this unfold."
Inflation, as measured by the US Consumer Price Index, hit a four-decade high of 9.1% per annum in June 2022 in the aftermath of the coronavirus pandemic and the trillions of dollars of relief spending for that.
Last month, it grew by 3% � its slowest in two years � after the Fed responded to the runaway inflation by raising interest rates aggressively, adding a total of 5% in 10 installments to the prior rate of 0.25%.
"I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted," Powell said. "And I would also say it's possible that we would choose to hold steady at that meeting. We've raised the federal funds right now by 525 basis points since March 2022. Monetary policy we believe is restrictive and putting downward pressure on economic activity and inflation."
Powell also said the Fed would be comfortable cutting rates "when we're comfortable cutting rates".
"That won't be this year," the Fed chair said. "Many people wrote down rate cuts for next year. That's just going to be a judgment that we have to make then a full year from now. It will be about how confident we are that inflation is in fact coming down to our 2% goal."
And while the economy wasn't out of the woods yet, the Fed was no longer forecasting a recession, given the robust pace of recent growth, Powell said.
He said staff at the central bank acknowledge "a noticeable slow down in growth starting later this year in (their) forecast, (but) given the resilience of the economy recently, they are no longer forecasting a recession."
The US economy, measured by its real gross domestic product, grew by an annualized 2% in the first quarter of this year, the Commerce Department said last month. Some economists had forecast lower or even negative growth for the quarter.
