(MT Newswires) - Jerome Powell, Chairman of the Federal Reserve, stresses the institution's commitment to pursuing its dual mandate of promoting maximum employment and stabilising prices in the United States. He notes that significant progress has been made towards these objectives, with inflation falling and a robust labour market. However, he acknowledged that inflation remains above the 2% target and that the path to stabilisation is not guaranteed.
He announced that the Federal Open Market Committee (FOMC) had decided to keep the key interest rate unchanged, while continuing to reduce the Fed's balance sheet. This restrictive monetary policy is exerting downward pressure on economic activity and inflation, with the labour market tending towards a better balance between supply and demand.
The US economy is showing solid growth, with GDP rising by 3.2% in the last quarter and 3.1% over the whole of the previous year, underpinned by strong consumer demand and improved supply conditions. However, the housing sector has been held back by high mortgage rates, and business fixed investment appears to have suffered from high interest rates.
The labour market remains tight, with an average of 265,000 jobs created per month recently and the unemployment rate rising slightly to 3.9%. Despite strong job creation, nominal wage growth is slowing and the number of vacancies is falling, a sign that demand for labour is beginning to match available supply.
Inflation has fallen significantly over the past year but remains above the long-term target. The median forecast for total PCE inflation is 2.4% for this year, 2.2% for the following year, and 2% for 2026.
Powell reaffirmed the Fed's determination to bring inflation down to 2%, while maintaining the target range for the federal funds rate between 5.25% and 5.5%. He says that if the economy develops as expected, it may be appropriate to start easing monetary policy later in the year. Nevertheless, he stressed that the Fed remains vigilant to inflationary risks and is prepared to maintain the current rate for longer if necessary.
The Fed will carefully assess incoming data and risks to adjust its monetary policy. It will not consider reducing the target range for the federal funds rate until it has greater confidence in the sustainable trend of inflation towards 2%. Any adjustments to monetary policy will be decided on a meeting-by-meeting basis, depending on how the economy develops and whether the objectives of full employment and price stability are achieved.
Bloomberg videos, provided by MT Newswires
