US Fed needs more 'confidence' to cut rates

Washington, US – The US Federal Reserve wants to see more "confidence" that inflation is moving lower to its 2% target before beginning to cut interest rates, according to minutes of Fed's recently held meeting.

Federal Open Market Committee (FOMC) participants generally noted their uncertainty about the persistence of high inflation and expressed that recent macroeconomic data have not increased their confidence that inflation was moving sustainably down to 2%, said the minutes from the Fed's last meeting.

"Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent," it added.

The Fed skipped an interest rate hike in March as widely expected, and kept its federal funds rate unchanged between the 5.25% - 5.5% target range.

Annual consumer inflation in the US, however, rose 3.5% in March, and it was up monthly 0.4%, both coming in above expectations, according to figures released by the Bureau of Labor Statistics on Wednesday.

"(FOMC) Members agreed that they did not expect that it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably toward 2 percent," said the minutes.

The Fed's next two-day meeting will conclude May 1 and it is widely expected to keep the federal funds rate unchanged.

The probability of a rate cut of 25 basis points at the Fed’s June 12 meeting stood at just 16.5% as of Wednesday, according to the Fedwatch Tool provided by the Us-based Chicago Mercantile Exchange Group.

The probability of a cut of 25 basis points at the July meeting was 35.7% and 45.5% for the September meeting.

Fed officials felt that the key interest rate was likely at its peak and it would be appropriate to loosen the monetary policy stance at some point this year, the minutes of its latest policy review meeting showed.

"Almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected," the minutes said.

The US Federal Reserve, in its March meeting, voted to leave the key interest rate unchanged at 5.25-5.50%, keeping the policy rate unchanged for the fifth

Annual consumer price inflation in US rose 3.5% in March, and it was up monthly 0.4%, both coming in above expectations

straight time on the trot.

During the Covid-19 pandemic, the interest rates were kept near zero. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.

The US central bank then indicated three interest rate cuts this year and affirmed that solid economic growth would continue. The US Federal Reserve's commitment has been to bring down consumer inflation to its target of 2%.