Decision comes after US CPI showed signs of easing, but GDP growth remained strong
The United States Federal Reserve Federal Open Market Committee (FOMC) meeting concluded today with the announcement that the FOMC will hold its benchmark funds rate steady at 5.25 – 5.5 per cent. Fed Chair Jerome Powell has held this rate steady for a year.
The decision to hold comes despite CPI prints showing that US Inflation is falling though it remains above the US Fed’s two per cent target rate. A hold was expected coming into this meeting, though analysts are pricing in a high likelihood of an interest rate cut at the next FOMC meeting in September. That potential cut will rely on a continuing downward trend in inflation.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low,” a press release announcing the decision reads. “Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee's 2 percent inflation objective.”
The decision to hold was mirrored by the Bank of Canada’s decision to cut interest rates by 25 basis points at their July meeting last week. Jared Franz, US economist at Capital Group, recently pointed out that Canada’s labour market is currently showing far greater signs of strain than its US equivalent. A stronger labour market as well as stronger GDP growth appear to give the Fed more cover to hold for now.
“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the release reads. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.”
