The US Federal Reserve on Wednesday voted to pause its aggressive campaign of interest rate hikes despite “elevated” inflation, while indicating a sharp increase could be needed before the end of the year.
“It allows the economy a little more time to adapt as we make our decisions going forward,” US Fed Chairman Jerome Powell said at a news conference after the announcement.
After 10 straight increases, the Fed’s rate-setting committee voted to hold its benchmark lending rate from 5 to 5.25 percent, the US central bank said in a statement.
Photo: AFP
The widely-expected decision gives policymakers on the US Federal Open Market Committee time “to assess additional information and its implications for monetary policy,” the Fed said.
However, committee members hinted that more monetary tightening lies ahead, raising the median projection for interest rates at the end of this year by another half percentage point.
“Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time,” Powell said.
The US economy has shown signs of slowing in recent months, with the Fed forecasting a mild recession to begin later this year.
However, despite the Fed’s campaign of monetary tightening, annual inflation remains “elevated” above the US central bank’s long-term target of 2 percent, while unemployment remains low, the Fed said.
Recent indicators suggest that “economic activity has continued to expand at a modest pace,” it added.
The Fed also updated its economic forecast on Wednesday, lifting its GDP growth projection for this year to 1 percent from 0.4 percent in March.
Median inflation expectations for the year nudged down slightly to 3.2 percent, while core inflation expectations, which exclude volatile food and energy prices, rose to an annual rate of 3.9 percent, the Fed said.
The US economy faces “potential headwinds” from tighter credit conditions in the aftermath of the collapse of a number of regional lenders earlier this year, Powell said.
“It may make sense for rates to move higher, but at a more moderate pace,” he said.
US policymakers are “concerned that wage pressures will remain as the labor market remains very tight,” Oanda Corp senior market analyst Edward Moya said.
“With the US banking system remaining resilient and robust job gains, the Fed needs to deliver more tightening and that is why the dot plots [officials’ projections] are pricing in two more small rate hikes,” Moya added.
Most markets in Asia yesterday rose after the Fed decided against hiking interest rates, while the Chinese central bank cut borrowing costs to stimulate the struggling economy.
In Taipei, the TAIEX closed up 96.84 points — or 0.56 percent — at 17,334.98.
Bangkok, Hong Kong, Jakarta, Shanghai, Singapore, Sydney and Wellington all rose, but there were losses in Manila, Mumbai, Seoul and Tokyo.
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