As widely anticipated, the Federal Open Market Committee (FOMC) raised the funds rate to a 22-year high of 5.25 to 5.5 per cent at its July meeting, on the back of last month’s pause.
The FOMC’s post-meeting statement was little changed, with the committee indicating that economic activity appeared to be expanding at a “moderate pace” alongside “robust” job gains and low levels of unemployment, while inflation was noted to still be elevated.
“The committee will continue to monitor the implications of incoming information for the economic outlook. The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals,” it said.
In the US, headline inflation rose by 3.0 per cent in the 12 months to the end of June, the smallest annual increase since March 2021 and down from the 4.0 per cent lift seen in May.
Federal Reserve chair Jerome Powell indicated that the central bank was looking for signs that inflation was “durably down” and pointed out that core inflation was “still pretty elevated”.
“We think we’re going to need to hold, certainly, policy at restrictive levels for some time, and we’d be prepared to raise further if we think that’s appropriate,” he told a post-meeting press conference.
Mr Powell suggested that the Fed had “come a long way” and was “resolutely committed” to returning inflation to its target of 2 per cent over time.
“Inflation repeatedly has proved stronger than we and other forecasters have expected, and at some point, that may change,” he said.
“We have to be ready to follow the data and given how far we’ve come, we can afford to be a little patient as well as resolute as we let this unfold.”
The Fed chair reiterated that future rate decisions, including at the central bank’s next meeting in September, would continue to be data-dependent.
“I’m going to tell you again what we’re going to do in September,” Mr Powell told reporters.
“We’re going to look at two additional job reports, two additional CPI reports, lots of activity data, and that’s what we’re going to look at, and we’re going to make that decision then. That decision could mean another hike in September or it could mean that we decide to maintain at that level.”
In terms of when the Fed may switch to rate cuts, Mr Powell said: “We’d be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year, I don’t think”.
Mr Powell also noted that, given the resilience of the economy recently, Fed staff were no longer forecasting a recession but instead a “a noticeable slowdown in growth starting later this year”.
