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The United States Federal Reserve on Wednesday cited inflation concerns as its main reason for keeping interest rates on hold, despite a stronger job market – provoking a jump on global markets which was also echoed in Australia.
In a move highly anticipated by economists, the Federal Open Market Committee (FOMC) kept the federal funds rate between the target range of 5.25 percent and 5.50 percent, arguing in its written statement that “The economic outlook is uncertain, and the committee remains highly attentive to inflation risks.”
The Fed also maintained its previous forecast for three rate cuts before the end of the year, based on its dot plot.
At the media conference following its decision, FOMC chair Jerome Powell noted that a strong jobs market wouldn’t deter the central bank from cutting rates.
“My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people,” he said.
“The economy has made considerable progress toward our dual mandate objectives: inflation has eased substantially, while the labour market has remained strong…but inflation is still too high, and ongoing progress in bringing it down is not assured, and the path ahead is uncertain.
“We are fully committed to returning inflation to our two percent goal. Restoring price security is essentially to achieve a sustainably strong labour market that benefits all.”
Mr Powell said the Committee’s ‘restrictive’ approach to monetary policy was already producing the desired effects through pressure on inflation, and he hoped this would propel the US economy towards stronger territory.
“As labour market tightness has eased, and progress on inflation has continued, the risks to achieving our employment and inflation goals are moving into better balance,” he said.
The news was a mover on global markets: in the US, all three major stock indexes closed at record levels, with the Dow rising 1.03 percent, the S&P 500 rising 0.89 percent and the Nasdaq Composite boosted by 1.25 percent.
Australia’s S&P/ASX 200 Index followed this lead, pushing up 1 percent to above 7,770 on Thursday – its highest level in two weeks.
And in Japan, the Nikkei 225 Index hit new record levels on the news, leaping 1.7 percent.
