At the end of its two-day meeting, the Monetary Policy Committee (FOMC) revised its inflation forecast upwards in the United States, both for 2024 and 2025, at 2.6% and 2.3% respectively, and reported “modest additional progress” towards its long-term 2% inflation goal.
The members of the body voted unanimously to maintain reference interest rates at their highest levels in more than two decades.
FOMC officials hope a single cut of interest rates, of just 0.25 percentage points, between now and the end of the year.
Before the meeting, Fed officials were targeting two rate cuts in 2024, according to CME Group forecasts.
The Central Bank increased interest rates to combat inflation, after inflation levels soared for more than a year consecutively. However, the Fed did absolutely nothing to contain them under pressure from the Biden administration.
Raising rates makes credit more expensive and that slows down consumption and investment, cools the economy, and limits pressures on prices.
Inflation persists
Fed Chairman Jerome Powell said the Fed is prepared to keep its interest rates elevated until inflation moderates for several months.
“If inflation persists, we are ready to maintain the current range for the” reference interest rates “for as long as necessary,” Powell said at a press conference after the monetary policy meeting.
Likewise, “if the labor market weakens unexpectedly or if inflation falls more quickly than expected, we would be ready to react” and lower rates, he added.
The United States added 272,000 jobs last month, up from 165,000 in April, but the unemployment rate rose from 3.9% to 4.0%, according to the Labor Department.
Consumers see no relief
The announcement suggests that monetary policymakers remain cautious about cutting too soon, despite consumer price index (CPI) data released earlier on Wednesday showing a moderation in price increases.
12-month inflation in the United States fell slightly in May, to 3.3% compared to 3.4% in April, a relief after the rebound at the beginning of the year, according to the CPI.
However, Consumers see no relief anywhere of prices what the Federal Reserve is talking about
Data from the Department of Labor of the Joe Biden government show that in the month-to-month comparison, prices remained stable in May, compared to an advance of 0.3% registered in April over March.
The report is better than the forecast of analysts, who expected 0.1% monthly inflation and 3.4% year-on-year price increases, according to the consensus gathered by Market Watch.
Energy prices fell slightly, particularly gasoline. But those in housing, food and restaurants, among many others, continued their climb.
Democrats and Biden against the wall
Core inflation, which excludes food and energy, rose 0.2% in the month-on-month measurement compared to 0.3% in April over March and, more importantly, at 3.4% at 12 months in May compared to 3.7% year-on-year in April, according to the Joe Biden government.
The market expected data such as 0.3% and 3.5% respectively. In any case, they are higher than the Fed’s goal.
The PCE inflation index, the one most closely followed by the US central bank, remained stable in the 12-month measurement in April, at 2.7%. The data for May will be known at the end of June.
In the midst of the electoral campaign for the November presidential elections, the Democratic Party of President Joe Biden, who is seeking re-election, does not want the Fed’s measures to affect the vigorous labor market.
Democratic lawmakers sent a letter to Powell on Monday to pressure him.
In the desperate letter they said that “an excessively restrictive monetary policy would jeopardize the vigorous labor market” in the United States.
The Fed’s forecasts for economic growth remained stable at 2.1% for 2024 and 2.0% for 2025.
Source: With information from AFP.
