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US Federal Reserve Chairman Jay Powell said he did not see an immediate need to raise or lower interest rates, as the central bank continues to closely monitor the rebound in the market. 39, persistent inflation.
The US central bank on Wednesday maintained the target range of federal funds benchmark rate at 2.25% to 2.5%, a decision widely expected on the financial markets. It has made a technical change to one of its key rates to ensure that borrowing costs remain within the limits of its choice.
Powell said "strong fundamentals" were supporting the economy and that temporary factors could dampen inflation, which was only 1.6% in March, according to the measure favored by the government. the Fed.
"We think our political stance is appropriate at the moment – we do not see any solid reason to go both ways," Powell said at a press conference following the announcement of the bank's decision on rates.
Powell and colleagues at the Federal Open Market Committee are under intense pressure from President Donald Trump to cut borrowing costs to maintain the company's growth as the United States moves toward its longest expansion economic.
Although the Fed ended last year announcing that it would continue to raise rates to prevent the economy from overheating, many investors now expect a rate cut, with traders expecting a downward movement before the end of the year.
For the moment, the Fed seems on hold, with policymakers weighing contradictory economic data. Overall growth in gross domestic product remains strong, reaching 3.2% annualized in the first quarter, and some of the overseas risks that policymakers have been concerned with in recent months appear to have diminished, especially in China. The situation on the financial markets has also improved after the end in 2018.
But US private demand has grown at a slow pace over the first three months of the year, and moderate inflation continues to be a problem for Fed officials, higher-than-trend economic growth and a high unemployment rate. 3.8% did not allow price growth to increase the bank's 2% target.
The Fed said on Wednesday that the economy was growing at a "solid" rate overall, but also observed that household spending and business investment had decelerated in the first quarter, while the economy was growing at a healthy rate overall. inflation was "below" its target of 2%.
Mr Powell said there was reason to believe that the recent weakness in price growth could be temporary, with exceptional factors being dropped in inflation calculations. Nevertheless, the Fed would be worried if inflation remained constantly below its target, which would be "something that we would take into account when defining the policy," he said.
"As you all know, we are looking at not only our baseline, but also alternative, better and worse simulations, and we wonder what the appropriate policy response would be," Powell said. "I would just say that the committee is comfortable with our current political position."
The rise in the price of US Treasury securities was eroded when Mr Powell downplayed the idea of a short-term rate cut. The 10-year note yield decreased 0.2 basis points to 2.5053% after previously testing its lows in about a month.
The two-year, more policy-sensitive, late-day note yield was up 4 basis points to 2.304% from a previous low of 2.206%.
The US dollar also recovered, up 0.2% from a basket of developed market currencies. The euro and the yen both fell, while the pound sterling sharply reduced its gains. US equities oscillated before finishing at their lowest level of the session. The S & P 500 lost 0.8%, making it the worst single-day decline since March 22nd.
Upon entering the meeting, traders were on the lookout for signals that the Fed was willing to cut rates following dovish comments from several policymakers about still-low inflation. Charles Evans, president of the Chicago Fed, had suggested that the Fed would want to ease rates if inflation was disappointing, for example, by making core price growth of 1.5% a key level.
Richard Clarida, vice president of the Fed, said in an interview with CNBC that in 1995 and 1998, the central bank had made "cuts in the insurance sector" even though a recession was not threatening. not.
Mr. Powell strongly opposes questions aimed at generating debate about the likelihood of rate cuts and the conditions that could prompt the Fed to adopt them.
Instead, he pointed out that the Fed was sticking to its position of "patient" while it was monitoring the incoming data. "Our basic vision remains that, with a strong job market and continued growth, inflation will return to 2% over time and will then be roughly symmetrical in relation to our long-term goal," he said. he declared.
The risk for the Fed to openly discuss rate cuts is to send a bearish signal on the economic outlook and to make investors fear. The Fed is also struggling with Trump 's unprecedented public lobbying, which not only wants the Central Bank' s rates to be cut, but also that he relaunchs his quantitative easing program. The central bank would not want to suggest that it is bending under presidential pressure.
"There are reasons to lower rates if inflation drops to less than 2%, but my feeling is that it would take a lot of persuasion in terms of weak data for the Fed to be able to go ahead. make it, "said Roberto Perli of Cornerstone. macro
Although the central bank has kept its target range unchanged, it has made a technical adjustment to the interest rate paid on excess reserves, which is one of the tools it uses. to manage the costs of borrowing. This implied a slight reduction of this rate to 2.35%, in the hope that this would counteract an upward drift in the effective rate of federal funds.
Powell said the move "reflects no change in the direction of monetary policy," adding that the Fed is using interest on excess reserves to keep the federal funds rate in the target range. "The target range of the federal funds rate is our main indicator of the policy direction, and it remains unchanged."
Wednesday's decision on rates was approved unanimously by the Federal Open Market Committee of the central bank.
Other reports from Adam Samson and Pan Yuk in New York
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