NEW DELHI: The US Federal Reserve has decided to maintain its key interest rate unchanged, holding the target range for the federal funds rate at 4.25 per cent to 4.5 per cent. The decision comes as the central bank assesses the current state of the US economy, which remains strong despite some inflationary pressures.
Chair Jerome Powell, addressing the press after the Federal Open Market Committee (FOMC) meeting, emphasised that while inflation has eased considerably over the past two years, it remains slightly above the Fed’s 2 per cent target. Powell noted that the economy continues to expand at a solid pace, with consumer spending remaining resilient.
However, investment in equipment and housing has shown signs of slowing, particularly in the fourth quarter of 2024. The labour market remains stable, with unemployment holding steady at 4.1 per cent as of December, and payroll job gains averaging 170,000 per month over the last three months.
In his address, Powell said that the wage growth has also eased which is a sign of moderating pressures from the labour market. However, Powell warned that the Federal Reserve must remain cautious with its monetary policy.
Announcing the decision, Powell said, “With our policy stance significantly less restrictive than it had been, and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance. At today’s meeting, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 per cent”.
The Federal Reserve had previously reduced its policy rate by a full percentage point over the course of its last three meetings. Going further, Powell stated that the central bank will take a more measured approach going forward.
The Fed’s focus remains on achieving its dual mandate of maximum employment and stable prices, with Powell reiterating the central bank’s commitment to bringing inflation down to its 2 per cent target over time. The latest data show the Consumer Price Index (CPI) in US is rising at 2.6 per cent year-over-year in December, with core PCE inflation at 2.8 per cent.
According to Powell, the Federal Reserve is also conducting a five-year review of its monetary policy framework, which will involve outreach and public events to get input. The review will concentrate on improving the central bank’s approach to economic stability in light of recent experiences, without changing its 2 per cent inflation objective. It will conclude in summer as per the Fed Governor.
During the announcements, Powell said, “As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2 per cent, we can maintain policy restraint for longer”. (ANI)