US Fed leaves interest rate unchanged

"Economic activity rose at a solid rate" in the past few weeks, the Fed said in a policy statement a day after US President Donald Trump called on it to cut rates by 1 percentage point and take other steps to stimulate the economy. Powell's comment came after the Federal Open Market Committee (FOMC) voted unanimously to maintain the benchmark rate in a range of 2.25 percent - 2.5 percent. The Fed is also grappling with unprecedented public lobbying from President Trump, who not only wants to see the central bank slash rates but restart its quantitative easing programme.

In subtle changes from their last statement, officials said gauges for both overall and core inflation "have declined and are running below 2 per cent".

"We don't think about short term political considerations, we don't discuss them and we don't consider them in making our decisions one way or the other", he said. He said he didn't see a strong case for moving in either direction.

USA gross domestic product rose at a robust 3.2 percent rate in the first quarter of this year, beating market estimates of 2.3 percent.

Since then, global growth has improved, the US economy expanded at a strong 3.2% annual rate in the first quarter and stocks climbed to new highs. Early this year it halted its tightening campaign on concerns about weak data in the United States and overseas.

Back in December 2018, the Federal Reserve announced its fourth interest-rate hike of the year and released information suggesting most members of the Federal Reserve Board anticipated two or three additional hikes in 2019.

On the other hand United States private demand grew at a sluggish pace in the first three months of the year, and soft inflation is continuing to puzzle Fed officials as above-trend growth and unemployment of just 3.8 per cent fail to push year-on-year price growth durably to the 2 per cent target.

The Fed appreciated also the current lower inflation pressure, but it was also optimistic about its outlook proposing that likely to be "transitory".

Fed fears over low inflation had been mounting, with Powell recently calling it "one of the major challenges of our time". "This will leave the Fed firmly on the sidelines this year", Swonk added.

Federal Reserve Chairman Jerome Powell said USA inflation is possibly being dragged down by "transitory" forces and there is no bias to either tighten or ease monetary policy. And then, he appeared to win the argument: Fed officials quickly moved to resolve their apparent miscommunication with the markets, reassuring investors they would shift interest-rate policy if economic conditions changed. Republicans in Congress surely share the president's desire to avoid a recession, but they're also wary of a politicized Fed, which Trump surely would not hesitate to continue to pressure to cut rates even if that meant spiking inflation. The central bank would not wish to allow any appearance that it is buckling under presidential pressure.

In addition to weighing economic developments, Fed officials have endured a steady drumbeat of criticism from Trump over past rate hikes.

"The only thing less amusing than some of Mr. Moore's tasteless, offensive, sexist "jokes" was the idea that President Trump would even consider him for a seat on the Federal Reserve".