WASHINGTON: The Federal Reserve is keeping its benchmark interest rate unchanged at a time of low inflation, which remains persistently below the Fed’s target level.

The Fed noted on Wednesday in a statement that inflation has stayed undesirably low even though the job market keeps strengthening, with the unemployment rate just 4.4 per cent. Normally, solid job growth drives up wages and prices. But the Fed’s preferred gauge of inflation has moved further below its 2pc target in recent months.

The central bank decided after ending its latest policy meeting to leave its key rate unchanged in a range of 1pc to 1.25pc after having raised rates twice this year in March and June.

The Fed says it still envisions further “gradual” rate hikes. But many economists say they foresee no further rate increases this year unless inflation picks up.

With the US job market still solid after eight years of a grinding but durable recovery, the Fed has essentially met one of its two mandates to maximise employment. But it’s so far failed to achieve its other goal of stabilising inflation at a favorable level.

Inflation has been edging further below the Fed’s 2pc target in recent months. The problem is that too-low inflation can slow the economy by causing consumers to delay purchases if they think they can buy a product or service for a lower price later.

Months ago, the Fed had signaled its readiness to raise rates three times this year on the assumption that it needed to be more aggressive to ensure that consistently low unemployment didn’t contribute to high inflation later on.

But in testifying to Congress this month, Chair Janet Yellen had sounded less sure about her previous position that the slowdown in inflation this year was due to such temporary factors as a big drop in charges for cellphone plans.

Yellen conceded that Fed officials were puzzled by recent developments. Her remarks lifted financial markets as investors interpreted her words to suggest that the Fed might slow its pace of rate increases.

Published in Dawn, July 27th, 2017

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

‘Source of terror’
Updated 29 Mar, 2024

‘Source of terror’

It is clear that going after militant groups inside Afghanistan unilaterally presents its own set of difficulties.
Chipping in
29 Mar, 2024

Chipping in

FEDERAL infrastructure development schemes are located in the provinces. Most such projects — for instance,...
Toxic emitters
29 Mar, 2024

Toxic emitters

IT is concerning to note that dozens of industries have been violating environmental laws in and around Islamabad....
Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...