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Informist, Thursday, Aug 1, 2024

 

--US FOMC leaves federal funds rate target range unch at 5.25-5.50%

--US FOMC: Recent indicators show economic activity expanding at solid pace 
--US FOMC: Attentive to risks on both sides of inflation-growth mandate 

--US FOMC: Attentive to risks on both sides of inflation-jobs mandate 
--US FOMC: Job gains moderated, unemployment rate moved up but low 

--US FOMC: Saw some progress toward committee's 2% inflation aim 
--US FOMC: Strongly committed to returning inflation to 2% aim 

 

MUMBAI – The US Federal Open Market Committee kept the federal funds target rate unchanged at 5.25-5.50% in its July meeting, as was widely expected. This is the eighth consecutive meeting in which the US central bank has kept the policy rate unchanged.

 

The policy decision was unanimous, with all 12 voting members voting to keep the Fed funds target rate unchanged. After the policy decision, the yield on the 10-year benchmark US Treasury note was around 4.13%, little changed from the pre-policy outcome.

 

While the decision was not a surprise, the US Federal Reserve has changed its tone, which may reflect a softer monetary policy outlook. "Job gains have moderated, and the unemployment rate has moved up but remains low," the FOMC said. In the previous policy meets, it kept reiterating, "job gains have remained strong, and the unemployment rate has remained low".

 

The FOMC also said that inflation was "somewhat elevated" as against "inflation has eased over the past year but remains elevated" in the prior meetings. This comes against the backdrop of recent data indicating an ease in inflation and softening of the labour market.

 

The panel said that in recent months, there has been some further progress towards the committee's 2% inflation aim. In June, the US personal consumption expenditure index, the Fed's preferred inflation gauge, rose 2.5% on-year and 0.1% on-month.

 

However, the rate-setting panel said it does not see it appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%. Recent indicators suggest that economic activity has continued to expand at a solid pace, it added.

 

While there was an ease in the tone, the committee was cautious regarding inflation and employment goals. "The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate," it said. In June, according to the non-farm payrolls data, the US economy added 206,000 jobs, slightly below a downwardly revised 218,000 in May and above forecasts of 190,000. 

 

The panel also said that it would be prepared to adjust the stance of monetary policy as appropriate, if there are risks that could impede the attainment of its goals. The panel was strongly committed to bring inflation down to the 2% aim. Currently, Fed fund futures traders see an almost 94% chance of a 25-basis-points rate cut in the September meeting, while the rest expect a 50-bps rate cut. 

 

The committee said that it would continue to reduce its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as described in its previously announced plans. The Fed has begun trimming its balance sheet by $60 bln every month in Treasury and mortgage-backed securities starting Jun 1. This was after a monthly drawdown of $95 bln for the previous two years.  End

 

Reported by Nishat Anjum

Edited by Ashish Shirke

 

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