Federal Open Meeting Committee - Photo by Federal Reserves

JAKARTA (TheInsiderStories) – United States (US) Federal Reserve decided to maintain interest rates and promised to be patient in terms of raising borrowing costs further, said the governor yesterday (01/30). Previously, Federal Open Market Committee (FOMC) hinted to raise the federal funds rate (FFR) twice in this year.

After holding two days meeting, the Fed decided to maintain interest rates at 2.25 percent to 2.50 percent. The Governor Jerome Powell said in a written statement, the case for raising interest rates had diminished and the Fed lowered previous expectations for some further tightening.

The Fed also shifted to a more dovish attitude regarding the release of ongoing assets, saying it was ready to adjust its plans based on economic and financial developments. In front of the media, Powell said the central bank would likely stop cutting its balance sheet worth US$4.1 trillion faster, so that there would be more assets than previously thought.

“The current situation requires patience. I think that’s the right thing. I feel really confident,” he said.

FOMC noted, since the last meeting in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low.

While, Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near two percent.

Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

“In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2.25 to 2.50 percent,” adds by Powell.

Previously, Powell submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2018 through 2021 and over the longer run, based on their individual assessments of the appropriate path for the FFR.

The Fed noted that during the transition to a long-run operating regime with excess reserves below current levels, the effective FFR could begin to rise a little above the interest on excess reserves rate as reserves in the banking system declined gradually to a level that the Committee judges to be most appropriate for efficient and effective implementation of policy.

This upward movement in the federal funds rate could be gradual. However, the staff noted that the federal funds rate and other money market rates could possibly become somewhat volatile at times as banks and financial markets adjusted to lower levels of reserve balances.

by Linda Silaen, Email: linda.silaen@theinsiderstories.com