Federal Open Market Committee (FOMC) decided to kept the Fed Funds Rate at 0 - 0.25 percent, confirms the intention of the central bank to prop up the post-COVID-19 economy, said the central bank yesterday (06/10) - Photo by the Federal Reserve Office

JAKARTA (TheInsiderStories) – United States (US) Federal Reserve (Fed) chairman Jerome Powell rated the current level of interest rates  “likely to remain appropriate” and should sustain the economic expansion. In his speech on Monday (11/25), he asserted, now the target federal funds rate in the range of 1.50 to 1.75 percent.

He also saw monetary policy as “well positioned,” reiterated that policymakers are not on a “preset course” and said the central bank’ path on rates could change if there were a “material reassessment” of economic conditions.

The chairman also assured the central bank is strongly committed to maintaining 2 percent inflation, signaled that interest rates are unlikely to rise anytime soon. The Fed has cut its benchmark short-term rate three times this year to a range of just 1.5 percent to 1.75 percent.

“We are strongly committed to symmetrically and sustainably achieving our 2 percent inflation objective so that in making long-term plans, households and businesses can reasonably expect 2 percent inflation over time,” Powell said in a speech to the Greater Providence Chamber of Commerce in Rhode Island on Monday (11/25).

The Fed considers a 2 percent inflation rate to be a signal of sustainable growth and a level that keeps interest rates high enough to allow for mobility in the event of an economic downturn. However, inflation has run well below that level for 2019 despite three interest rate cuts over the past four months.

Powell expressed a sense of urgency in meeting the inflation part of the Fed’s dual mandate. He said low inflation expectations feed on themselves and make it tougher for the Fed to support the economy.

The asymmetric goal means policymakers would be content with inflation running a little above or below the 2 percent level. Other Fed officials have said that a period of time above 2 percent would be fine, with some members suggesting the Fed make an express commitment not to raise rates until the goal is met. Higher rates are used to keep inflation low.

Broadly speaking, Powell repeated language he and other officials have used lately, saying he sees “the current stance of monetary policy as likely to remain appropriate” and “well-positioned” so long as current “generally good” conditions persist.

Powell signaled last month that the Fed will now likely remain on hold unless the economy noticeably worsens. He said the three rate cuts have helped spur more home purchases, which have contributed to the economy’s ongoing expansion, now in its 11th year, the longest on record.

“At this point in the long expansion, I see the glass as much more than half full. With the right policies, we can fill it further, building on the gains so far and spreading the benefits more broadly to all Americans,” he said.

In addition to the inflation commitment, Powell also elaborated on another issue that has gained more attention in recent days, namely the still-low labor force participation rate in the US as well as the fairly muted wage gains.

While the current labor force participation level is 63.3 percent, the highest in more than six years, Powell said it still is low compared to other countries and is another area of focus the Fed could use to ensure that the benefits of the decade-long recovery are spread more evenly. The pre-recession participation rate was above 66 percent.

Powell said the Fed can help the participation and wage issues “by steadfastly pursuing our goals of maximum employment and price stability” though he said broader programs to support higher wages and a more engaged labor force are “beyond the scope of monetary policy” and more suited to legislators in Congress.

“These policies could bring immense benefits both to the lives of workers and families directly affected and to the strength of the economy overall,” he concluded.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com