The United States Federal Reserve Board (the Fed) concluded its two-day monetary policy meeting on the 19th local time and announced that it would maintain the federal funds rate target range at 4.25% to 4.50%. This decision aligns with market expectations and signifies that since the end of January, the Fed has once again chosen to keep rates unchanged.
Inflation Remains High, Labor Market Strong
In a statement, the Fed's decision-making body, the Federal Open Market Committee (FOMC), stated that although the U.S. unemployment rate has remained low in recent months and the labor market remains strong, inflation is still at a high level. The statement noted that inflationary pressures have not completely dissipated, and future policy adjustments will still need close attention to economic data.
Increased Economic Outlook Uncertainty
At the press conference following the meeting, Fed Chairman Powell stated that although the U.S. economy experienced rapid growth in the second half of 2024, recent consumer spending has slowed. Additionally, surveys of households and businesses indicate that economic outlook uncertainty has increased.
Powell particularly mentioned that the new government is implementing four major policy changes involving trade, immigration, fiscal policy, and regulation. The ultimate impact of these changes remains unclear and could have a profound effect on the overall economic trend and the direction of monetary policy. He also pointed out that the recent rise in commodity inflation data may be related to tariff policies, and accurately assessing the impact of tariffs on inflation remains a challenge.
Fed Lowers Economic Growth Forecast, Raises Inflation Prediction
The Fed released its latest economic outlook showing that officials have lowered the median growth forecast for the U.S. Gross Domestic Product (GDP) in 2025 to 1.7%, down from the 2.1% forecast last December. Meanwhile, the median inflation forecast measured by the Personal Consumption Expenditures (PCE) price index has been raised to 2.7%, up from 2.5% last December. The median core inflation forecast, excluding food and energy prices, was also raised from 2.5% to 2.8%.
Recession Risk Remains Mild
Regarding the possibility of an economic recession, Powell stated that some economists and forecasting agencies have slightly increased the risk of the U.S. economy falling into a recession, but currently, this risk remains at a "relatively mild level" and has not reached the level of market panic. He emphasized that the Fed will continue to monitor future economic data to determine when to adjust monetary policy.
Overall, the Fed's decision this time reflects a cautious attitude towards persistent inflation, slowing economic growth, and policy uncertainty. The future direction of monetary policy will still depend on multiple factors such as inflation, employment, and economic growth.
