The Federal Open Market Committee (FOMC) of the central bank, responsible for monetary policy, left the base interest rate unchanged at 3.50–3.75% for the fifth consecutive meeting.
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According to CME FedWatch data, most investors expected the FED not to change interest rates, but as the meeting approached, the number of those who thought rates might be raised increased significantly.
Annual inflation in the United States fell to 3.5% last month, but it is believed that due to fluctuating oil prices, which react particularly sensitively to D. Trump’s war with Iran, it will rise again.
The FED has a dual task – to keep inflation at a long-term target level of 2% and to ensure maximum employment in the world’s largest economy.
Its main tool to achieve these goals is setting the base interest rate. Raising it usually restrains economic activity, while lowering it can stimulate employment but may also lead to higher inflation.
On Wednesday, it was decided not to change interest rates, which means that nine monetary policymakers believe the current rate level has an appropriate effect on economic activity.
“Family dispute”
After the decision, FED head Kevin Warsh said there was a “family dispute” during which three policymakers expressed disagreement and urged raising interest rates to combat rapidly rising inflation.
K. Warsh denied rumors that he does not want to take action to address the inflation problem.
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“We are working. We will achieve results. We are fully focused on ensuring that we can do this,” he said, adding that there is no “magic wand” that the FED could use to quickly reduce inflation.
K. Warsh claimed that the US economy, despite recent shocks, shows “impressive resilience.”
The new FED chairman was appointed by Donald Trump, who, despite rising prices, exerted unprecedented pressure on the central bank to lower interest rates to stimulate the economy.
On Wednesday, D. Trump praised K. Warsh and said the FED head “would very much like to see lower interest rates.” He also added without any evidence that other board members make decisions based on political motives.
Since May, when he took office, the new FED head has repeatedly said he wants a “good family dispute” in interest rate setting meetings. On Wednesday, he said he got such a dispute when three policymakers disagreed with the majority and recommended the central bank raise interest rates by a quarter percentage point.
“Most of our discussions were devoted to important issues related to the conduct of monetary policy. We did not shy away from them,” K. Warsh told journalists. “There was much more interaction among my colleagues. It was a real family dispute.”
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