US Federal Reserve left its key interest rate unchanged – RBC

The building of the US Federal Reserve in Washington, DC

Photo: Reuters / Pixstream

The US Federal Reserve kept its key interest rate unchanged. Fed explained its decision by the need to support the further strengthening of the labor market and achieving the inflation targets

Federal Open Market Committee (FOMC) US Federal Reserve left the benchmark interest rate in the range of 0.25-0.5%. Of the 10 FOMC members voted for the base rate only the chairman of the Federal Reserve Bank of Kansas Esther George spoke for her promotion to 0,5-0,75%.

In the published decision FOMC indicated that since the last meeting of the Committee in June good statistics showed the labor market and economic activity grew at a moderate pace. FOMC noted that employment growth was high in June. In addition, the increased household spending. Inflation continues to be below 2%, which is a consequence of what happened earlier decline in energy prices

FOMC expects that the gradual adjustment of monetary policy, economic activity will grow and the labor market -. Strengthen. Inflation will remain low in the short term and the medium – will rise to 2%. FOMC noted that short-term risks to the economy decreased

As explained to Bloomberg on the eve of publication of the decision on the rate professor at the University of Economics, Johns Hopkins Jonathan Wright now views FOMC divided -. Some believe that the base rate should be increased this year, and possibly more than once. According to them, it would reflect the positive momentum in US economic growth. Others believe that the risk management considerations dictate a more cautious behavior.

At the June 12 FOMC members voted unanimously for keeping rates unchanged against the backdrop of bad statistics to increase the number of jobs in May, and on the eve of the British referendum on the exit from the EU.

The last time the Fed made the decision to raise the base rate in December 2015 by 0.25 percentage points (from a record low of 0-0.25%). Prior to that, the rate did not rise in 2006. The decision on raising rates was made against the backdrop of the Fed’s low inflation expectations due to cheaper imports and the fall in oil prices. However, in March 2016 Yellen acknowledged that the two factors that have been dampening inflation, lose their power.

At the end of June, Bloomberg, after analyzing the prices of Eurodollar futures and a survey of analysts concluded that the Fed rate increase no earlier than 2018.