Photo: Xinhua/Liu Jie
WASHINGTON, March 21 (Xinhua) -- The U.S. Federal Reserve left record high interest rates unchanged at Wednesday's meeting due to ongoing inflationary pressures, but signaled a cut later this year.
Rates remained unchanged as the worst inflation in 40 years persists and the labour market remains surprisingly resilient.
The Fed's move left current rates - a 23-year high of 5.25 % to 5.5 %.
The central bank began raising rates in March 2022 to tame skyrocketing inflation, caused primarily by what leading economists have described as profligate spending by the U.S. government during the COVID-19 pandemic.
The Federal Open Market Committee, the Fed's policy-setting body, reiterated that it expects to lower the target range once it gains more confidence that inflation is moving steadily closer to the 2 % target.
"Inflation has come down significantly over the past year but remains above our long-term target of 2 %," Fed Chairman Jerome Powell said at a press conference on Wednesday afternoon. "Continued progress in reducing it is uncertain, and the path forward is uncertain."
Powell told reporters that the recent consumer inflation data did not boost anyone's confidence. "We've had nine months of 2.5 percent inflation. We've had two months of volatile inflation. It's going to be a bumpy ride," he said.
The U.S. consumer price index accelerated to 3.2 percent in February from a year earlier, indicating continued inflationary pressures, the Labor Department's Bureau of Labor Statistics said last week.
According to the Fed's latest quarterly summary of economic projections, released Wednesday, Fed officials' median projection for the appropriate level of the federal funds rate would be 4.6 % at the end of this year, 3.9 % at the end of 2025, and 3.1 1 % at the end of 2026.
Quarterly economic projections also showed that Fed officials revised the median projection for core personal consumption expenditures inflation to 2.6 %, up from the 2.4 % projected in December.
Speaking to reporters on Wednesday, Powell said the central bank could also cut rates "if there is a significant weakening in the labour market".
The Fed chief said the central bank continues to look for signs that inflation is trending downward toward a more sustainable path, as it appeared to be in the first half of the year.
"We're looking for data to confirm the low readings we had last year," Powell said. "And they'll give us a higher degree of confidence that what we saw was actually a sustainable movement of inflation down toward two percent."
Barry Bosworth, an economist and senior fellow at the Brookings Institution, told Xinhua that the Fed's decision was predictable. "Inflation is at risk of moving higher in a continuing strong economy. No real reason to cut rates," he said.
Dean Baker, chief economist at the Center for Economic and Policy Research, told Xinhua that the Fed's decision is "somewhat disheartening."
While the economy doesn't need lower rates to boost growth, a rate cut would help the housing market, he said.
"Sales of existing homes are down by about a third compared to 2021. There are a lot of people who would like to buy or sell a home but are not doing so because of the high rates," Baker said.
"(Higher rates) also make it harder for startups that don't have retained earnings and have to borrow in the credit markets," Baker said.
At the press conference, the Fed chief noted that he and his colleagues are well aware that high inflation is causing "considerable difficulty" because it reduces purchasing power, especially for those who are least able to meet the higher costs of basic necessities such as food, housing and transportation.
A January Gallup Institute poll found that 63 % American adults say recent price increases have caused their families financial hardship. Of those, 17 percent say it is a serious hardship that affects their ability to maintain their standard of living, and 46 percent say it is a moderate hardship but does not threaten their standard of living.
Headline inflation, while still high, is falling, although there remain a large number of different measures of inflation.
For example, food inflation remains high as Americans - especially lower-income, lower-middle class, and fixed-income people - continue to stretch their finances to afford everyday goods.
Sally Niles, a 73-year-old retiree from New Jersey, told Xinhua news agency that high prices are plaguing the traditionally more affordable supermarkets in her community.
"I've never experienced this before," she said, adding that inflation came "suddenly" about two years ago.
The Fed's decision means individuals will continue to pay high mortgage rates and increased borrowing costs as the central bank continues to fight inflation.
Desmond Lachman, a senior fellow at the American Enterprise Institute, recently told Xinhua that keeping interest rates high based on backward-looking data is exacerbating the current commercial real estate crisis.
Xinhua/gnews.cz-GeH_07
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