Fed predicts prolonged period of price rises.
US Federal Reserve believes its 2% inflation target would be met in the long run, but they admit it might take longer than expected for the current inflation wave to die down. Traders still anticipate a September interest rate cut.
Although inflation has persisted at high levels, the US Federal Reserve is still looking forward to a decline in prices as they approach their goal of a turnaround in interest rates. This was clearly stated in the latest monetary policy meeting minutes. The participants remain confident that their 2% inflation target will be reached in the medium term, but admitted it might take longer than initially thought for the surge in prices to dissipate.
After the minutes were published, traders continued to believe a September interest rate reduction was likely. However, the chances of a December reduction were only about 50%. The minutes didn't stir up any expectations for interest rates, causing a subdued atmosphere on the stock market. Major indices on Wall Street closed with nearly half a percent losses, which they had managed to recover from before the release.
On May 1, US central bankers, led by Federal Reserve Chairman Jerome Powell, kept the main interest rate at 5.25-5.50%. The Federal Reserve stated that no progress had been made towards their inflation target of 2% in recent months. A turnaround in interest rates wouldn't be preferable until they were more certain prices were headed towards their target consistently. Powell had previously suggested maintaining the high interest rate policy for longer to beat the inflation wave.
The minutes revealed that a further interest rate hike could be considered. Several participants expressed readiness to tighten monetary policy if the growing inflation risks warranted it, but Fed board member Christopher Waller said recent data showed that inflation wasn't increasing. Based on this information, additional interest rate hikes might not be necessary. The inflation rate eased from 3.5% in March to 3.4% in April.
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The Fed's anticipated interest rate turnaround might help curb the prolonged period of inflation. However, some analysts suggest that the Fed might keep interest rates at their current levels until they are more confident in meeting their 2% inflation target.
Source: www.ntv.de
