The Federal Reserve will continue to sit on interest rates, this week, noting that the Federal Open Market Committee has elected to keep rates at the target range of 1.5 to 1.75 percent. In addition, the Fed said it might hold rates at this range through, at least, the beginning of next year.
In 2018, the central bank raised interest rates four times, focused mostly on concerns that a combination of tax cuts designed to stimulate the economy and an historically tight labor market could boost inflation past the modest 2 percent goal, at the time.
This helped contribute to the Fed cutting interest rates at three consecutive meetings in 2019. These drastic measures came out of fears of accelerated global slowdown and slowing inflation.
It is important to hold the rates as they are, the Fed notes, while they can monitor global developments and “muted” inflationary pressures that are putting some pressure on the US economy. However, the Fed’s most recent statement removed the wording put in at the October meeting which indicates downside risks, like the US-China trade war, soon fading away.
Indeed, a recent note from the Fed comments, “The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”
Accordingly, Federal Reserve Chairman Jerome Powell said, on Wednesday this week, that he prefers to let inflation continue to rise and hold higher than the central bank’s target before considering any interest rate hikes in the future.
Powell advises, “In order to move rates up, I would want to see inflation that’s persistent and that’s significant. A significant move up in inflation that’s also persistent before raising rates to address inflation concerns: That’s my view.”