Throughout his news conference,Powell expressed optimism that inflation,which has bedevilled American consumers and businesses for more than two years,is edging down toward the Fed’s 2 per cent target. He noted,by example,that inflation has eased in goods,housing and services — three categories the Fed has been closely monitoring.
“Inflation keeps coming down,the labour market keeps getting back into balance and,it’s so far,so good,” Powell said.
The Fed chair downplayed one concern that some economists have expressed — that the final step down to 2 per cent inflation,from its current level of about 3 per cent,could be harder than the previous slowdowns in price increases.
“We kind of assume that that it will get harder from here,” he said. “But so far it hasn’t.”
In a statement it issued after its 19-member policy committee met on Wednesday (US time),the Fed said that “inflation has eased over the past year,but remains elevated.” It was the first time since inflation first spiked that the Fed has formally acknowledged progress in its fight against accelerating prices.
The Fed also provided a hint that its rate cut efforts may be over,saying it is now considering whether “any additional” hikes are needed.
The Fed kept its benchmark rate at about 5.4 per cent,its highest level in 22 years,a rate that has led to much higher costs for mortgages,auto loans,business borrowing and many other forms of credit. Higher mortgage rates have sharply reduced home sales. Spending on appliances and other expensive goods that people often buy on credit has also declined.
So far,the Fed has achieved what few observers had thought possible a year ago:Inflation has tumbled without an accompanying surge in unemployment or a recession,which typically coincide with a central bank’s efforts to cool the economy and curb inflation. Though inflation remains above the Fed’s 2 per cent target,it has declined faster than Fed officials had expected,allowing them to keep rates unchanged and wait to see if price increases continue to ease.
At the same time,the government’s latest report on consumer prices showed that inflation in some areas,particularly health care,apartment rents,restaurant meals and other services,remains persistently high,one reason why Fed Chair Jerome Powell is reluctant to signal that policymakers are prepared to cut rates anytime soon.
Loading
On Wednesday,the Fed’s quarterly economic projections showed that its officials envision a “soft landing” for the economy,in which inflation would continue its decline toward the central bank’s 2 per cent target without causing a steep downturn. The forecasts showed that the policymakers expect to cut their benchmark rate to 4.6 per cent by the end of 2024 — three quarter-point reductions from its current level.
The Fed is the first of several major central banks to meet this week,with others also expected to keep their rates on hold. Both the European Central Bank and the Bank of England will decide on their next moves Thursday.
AP