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FOMC Maintains Rates Amid Inflation Concerns

Source: FOMC

Washington DC, USA - The Federal Open Market Committee (FOMC) recently met, and Chairman Jerome Powell commented on the Fed's adherence to its dual mandate of maximum employment and stable prices. 

While current inflation rates are lower than previous peaks, they are still above the Fed's long-term 2 percent target. 

To address this, the Fed has raised the federal funds rate by 5-1/4 percentage points and reduced its securities holdings, adopting a hawkish stance to restrain economic activity and inflation. 

The FOMC decided to leave the federal funds rate unchanged and continue to reduce its securities holdings.

GDP growth slowed to a projected 2-1/2 percent for the year, influenced by consumer demand and improved supply conditions. 

The housing market, affected by higher mortgage rates, shows signs of stabilization but remains weaker than last year. 

Business investment is also being affected by higher interest rates.

The labor market remains strong, with job gains averaging 204,000 per month over the past quarter. 

The unemployment rate is low at 3.7 percent, pointing to improved labor market conditions. 

The Committee expects these trends to reduce inflationary pressures gradually and projects that the unemployment rate will rise slightly to 4.1 percent next year.

Inflation rates have declined but remain above the 2 percent target. 

The Fed reports a 2.6 percent increase in total PCE prices and a 3.1 percent increase in core PCE prices, excluding food and energy, over the past year. 

The FOMC acknowledges that more substantial evidence is needed to confirm a sustained trend toward the inflation objective.

The Summary of Economic Projections (SEP) projects a gradual decline in inflation: 2.8 percent this year, falling to 2.4 percent next year and targeting 2 percent by 2026. 

The FOMC states that it is ready to modify policy to achieve the 2 percent inflation objective.

The ongoing changes in the post-pandemic economy will shape the Fed's policy decisions. 

The Committee plans to adjust its strategy in response to new data and risk assessments, primarily focusing on restoring price stability to support long-term employment and stable prices.