The US Federal Reserve maintained interest rates and hinted at potential future cuts, but expressed concern over recent disappointing inflation readings, Reuters reports.
Fed Chair Jerome Powell noted that it may take longer than previously expected for inflation to decline towards the target of 2%. The Fed believes that the current policy rate is sufficient to bring inflation under control and that the benchmark policy rate would likely remain within the 5.25%-5.50% range for an extended period. Powell’s remarks that rate hikes would be “unlikely” provided some relief for investors. The Fed also announced a slowdown in the pace of shrinking its balance sheet to ensure the financial system does not run short of reserves.
Despite relatively weak first-quarter GDP growth, Powell emphasized that the economy continues to expand at a solid pace, with strong job gains and a low unemployment rate. He also dismissed concerns of entering a period of stagflation, stating that current conditions are nothing like those seen in the late 1970s when prices were rising more than 10% annually alongside high unemployment.
