U.S. Federal Reserve Keeps Interest Rates Steady as U.S. Economy Motors Along

May 02, 2019

The Federal Reserve held interest rates steady on Wednesday as policymakers took heart in continued U.S. job gains and economic growth and held out hope that weak inflation will edge higher.

“The labor market remains strong ... economic activity rose at a solid rate” in recent weeks, the U.S. central bank said in a policy statement a day after President Donald Trump called on the Fed to cut rates by a full percentage point and take other steps to stimulate the economy.

Federal Reserve policymakers said the economy was in a good position as economic and job growth continued, and a possible increase in inflation remained "the most likely outcome" as growth in America nears its tenth year.

At its two-day meeting, the Federal Reserve decided to cut interest rate it pays to banks on reserve surplus to 2.35%, from 2.40%, in an effort to ensure the continuation of the basic lending rate for one night, the federal funds rate, within the current target range.

The main concern in the US central bank statement is the current "weak" level of inflation, which continues to fall below its 2% target. The statement pointed out that a recent decline in inflation may last longer than expected, and that it is no longer possible to blame only for low energy prices.

The latest data showed that inflation was about 1.5% year on year, which would be a problem if it means households and businesses have doubts about the strength of the economy and less willing to spend and invest.

In this situation, combined with the weakening of the global economy, the Fed confirmed that it will "be patient" in deciding on any changes to the overnight lending rate, which remained unchanged at 2.25-2.50 percent.