Ignoring pressure from President Donald Trump to cut interest rates and revert to crisis-era stimulus measures, the Federal Reserve voted to leave interest rates unchanged at the conclusion of its two-day policy meeting Wednesday in Washingon, DC.
Citing a “strong” labour market, “solid” economic growth and a lack of inflationary pressure, Federal Reserve policymakers voted unanimously to keep the benchmark interest rate unchanged at its current range of 2.25 to 2.50 percent.
Few expected the Fed to make a move on interest rates with United States unemployment hovering at a 50-year low, financial markets on stronger footing and data last week showing that the US economy grew at a stronger than anticipated 3.2 percent during the first three months of this year.
Yet despite these signs of strength, President Trump has continued to express ire with the Fed’s stewardship of the US economy.
Tuesday, Trump took to Twitter to pressure the Fed to cut interest rates by a full percentage point and return to the crisis-era bond-buying programme known as quantitative easing or QE.
“We have the potential to go up like a rocket if we did some lowering of rates, like one point, and some quantitative easing,” Trump wrote on Twitter.
Quantitative easing, which ultimately increases the money supply within an economy, can trigger inflation.
Focus on inflation
The Fed noted in its post-meeting statement that “inflation for items other than food and energy have declined and are running below 2 percent” – the target policymakers believe is consistent with economic health.
That Fed’s statement also focused on the less stellar aspects of recent economic growth figures, noting that “growth of household spending and business fixed investment slowed in the first quarter”.
But policymakers reiterated that the Fed would continue to be “patient” as it determines the future path of interest rates.
James Marple, senior economist with TD Bank Group, said inflation would have to move “convincingly lower” for the Fed to adjust or ease policy.
“As long as economic growth continues and the labour market remains healthy, this appears unlikely,” Marple said.
Powell not bothered
The intensity of Trump’s attacks against the Fed has raised eyebrows about political interference with the Federal Reserve’s independence.
Those concerns were fueled further in March after Trump said he planned to nominate Stephen Moore, a conservative economist who served as a Trump campaign adviser, to the Federal Reserve board.
But when asked by reporters Wednesday about Trump’s commentary and recent Twitter outbursts, Federal Reserve Chairman Jerome Powell stated that the Fed does not take them into account. “We are a non-political institution,” he said.