The US Federal Reserve kept interest rates unchanged on Wednesday at 5.25-5.5 percent, while observing that economic activity has expanded at a healthy pace while inflation has eased over the months, hinting at a rate cut later this year.
The Federal Open Market Committee (FOMC) also noted that job gains have moderated and the unemployment rate has moved up but remains low.
“Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the committee’s 2 percent inflation objective,” the FOMC said in a statement.
The committee also said that it “won’t be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent”.
In an important update, the FOMC also said that it would continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.
Striking a balance
The Federal Reserve is trying to strike a delicate balance. On one hand, it wants to keep rates high enough to reduce inflation, which has fallen to 2.5 percent from a peak two years ago of 7.1 percent. But at the same time, it doesn’t want to keep borrowing costs so high that they trigger a recession.
Last week, the government said that yearly inflation fell to 2.5 percent in July, according to the Fed’s preferred inflation measure. That is down from 2.6 percent the previous month and the lowest since February 2021, when inflation was just starting to accelerate.
At the same time, the unemployment rate has risen by nearly a half-percentage point this year to a still-low 4.1 percent. Moreover, hiring has slowed.
UAE keeps rates unchanged
Following the Fed’s announcement, the UAE Central Bank said that it is keeping its key rate unchanged.
“The UAE Central Bank has decided to maintain the base rate applicable to the overnight deposit facility (ODF) without change at 5.40 percent,” it said.
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