Federal Reserve Signals Steady Policy as Rate Cuts Loom
(MENAFN) On Tuesday, US Federal Reserve Chair Jerome Powell indicated the central bank is prepared to hold off on policy changes until more clarity emerges about the economy’s direction.
During his address at the Semiannual Monetary Policy Report to Congress, Powell noted, "Policy changes continue to evolve, and their effects on the economy remain uncertain." He highlighted that the impact of tariffs will largely hinge on their ultimate levels, among other factors.
"Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined," Powell explained. Despite this, he warned that tariff increases this year are expected to elevate prices and dampen economic activity.
Powell stressed the Federal Open Market Committee’s (FOMC) responsibility to keep long-term inflation expectations firmly anchored and to avoid allowing a temporary price hike to trigger sustained inflation. “The FOMC's obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem,” he said, acknowledging the inflationary effects could be either fleeting or more enduring.
Balancing the objectives of maximum employment and stable prices remains paramount, Powell said, and the Fed will act accordingly to meet these goals.
"For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance," Powell stated.
Last week, the Federal Reserve left the policy rate unchanged within the target range of 4.25% to 4.50%, aligning with market expectations. In its policy statement, the Fed acknowledged that while economic uncertainty has lessened, it still remains notably high.
Since maintaining the policy rate at a historically elevated 5.5% from July 2023 through September 2024, the Fed has been gradually lowering it to the current 4.5% range. The central bank continues to project the year-end rate at 3.9%, signaling expectations for two rate cuts during the remainder of this year.
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