In a widely anticipated move, the U.S. Fed has decided to maintain the target interest rate between 4.25 percent to 4.50 percent owing to the elevated Inflation range in the country. Fed Chair Jerome Powell said inflation “has been running somewhat above our two percent longer-run objective”, reinforcing the central bank’s cautious approach despite the political pressure to ease.
In an official statement, the Fed committee said that it has decided to maintain the target range for the federal funds rate owing to the elevated Inflation range. The statement added that the unemployment rate in the U.S. remains low and the labour market conditions also remains solid.
“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 announcement noted.
Addressing the media, Jerome Powell, the Chair of the Federal Reserve said the U.S. is expecting to gather more data on the economic impact of President Trump’s tariffs in the coming months to finalise changes in the current interest rates.
“As long as the economy is solid, though, as long as we’re seeing the kind of labor market that we have and reasonably decent growth and inflation moving down, we feel like the right thing to do is to be where we are, where our policy stance is, and just learn more,” Powell said. “In addition, we’ll see how the labor market progresses. So at some point it will become clear, I can’t tell you exactly when that will be.”
The American financial authorities are planning a thorough assessment of the signs of weakness and strength in the U.S. labour market, especially after the tariffs go into effect.
As per data by TradingEconomics, U.S.’ inflation rate rose to 2.70 percent in June from 2.40 percent in May this year. The Fed is aiming at returning U.S. inflation to its two percent objective.
The futures markets, as per Reuters, now estimate a 68 percent chance of a 25 bps cut in September followed by a 65 percent chance of another in December.
Meanwhile, President Trump has boldly predicted that August 1st – the day his international tariffs, including those against India, would go into effect – would mark a “big day” for the U.S. economy that would rope-in substantial capital gains for the nation. He said he plans to impose a 25 percent tariff on Indian imports starting August 1, along with a “penalty” for what he called India’s unfair trade practices and ties with Russia.
Trump, ahead of the the FOMC’s decision, had launched a fresh attack on Powell blaming the high rates for the ongoing economic drag, advocating a three percent cut. “Even if he does it today, probably won’t. I hear they’re going to do it in September. Not today. For what reason? Nobody knows,” the President said.