Chairman US's Federal Reserves Jerome Powell - Photo by the Federal Reserves Office

JAKARTA (TheInsiderStories) – The United States Central Bank Federal Reserve (The Fed) still maintains the target range for the benchmark interest rate in the range of 2.25-2.25 percent, even though the economy has increased and the labor market remains strong and inflationary pressures are muted, according to minutes of Federal Open Market Committee’s April 30-May 1 meeting released Wednesday (05/22).

“Even if global economic and financial conditions improves, a wait and see approach is needed,” officials said.

Officials were divided because of the prospect of interest rates. Some officials say there may be a need for a higher level if the economy develops as they think. But others think higher productivity might mean there is more economic slack than indicated by a low unemployment rate.

Some others expressed concern about the risk of a low inflation reading leading to lower inflation expectations in the future, but did not call for a reduction in interest rates.

With that, the Committee finally reaffirmed its position to be patient about further economic policy tightening this year.

The Committee also notes that they are ready to adjust the size and composition of the balance sheet to achieve macroeconomic objectives.

Some participants saw the risk of falling real GDP growth has declined, partly because the prospect of a sharp slowdown in global economic growth, especially in China and Europe, has diminished. Despite this increase, most participants observed that the downside risk of the growth prospects remained.

However, both overall inflation and inflation for items other than food and energy have declined and are below the target of 2 percent.

The Committee commented that if inflation shows no signs of moving up in the coming quarter, there is a risk that inflation expectations can be anchored at levels below that are consistent with 2 percent – a development that can make it more difficult to achieve a 2 percent inflation target on an ongoing basis long-term.

On the other hand, some of the risks and uncertainties that have surrounded the US outlook at the beginning of the year have been reduced, including those related to the global economic outlook, Brexit, and trade negotiations.

However, the Committee notes that if the economy develops as they expect, and it is likely that it will need to strengthen the attitude of monetary policy to maintain economic expansion and maintain inflation at a level consistent with the objectives of the Committee.

In addition, the Committee continues to pay attention to the possibility that inflationary pressures can build quickly in a tight environment of resource use.

Conversely, calm inflation coupled with a rise in real wages roughly in line with productivity growth might indicate that resource use is not as high as suggested by the latest low reading of the unemployment rate, according to the Committee.

Therefore, the Committee stresses that its monetary policy decisions will continue to depend on their assessment of the economic prospects and risks to these prospects, as informed by various data.

As known, interest rates in the US averaged 5.67 percent from 1971 to 2019, reaching an all-time high of 20 percent in March 1980 and a record low of 0.25 percent in December 2008 to make the world’s strongest economy suffer a crisis sharp financial.

Written by Daniel Deha, Email: daniel@theinsiderstories.com