Friday, after this week's political meeting, Fed officials declared that current economic uncertainty requires a patience of monetary policy. Indeed, the Trump administration's commercial policy makes the future more risky.
On Wednesday, the US central bank maintained its reference interest rate from 4.25% to 4.50%. He also said economic instability increased.
This is good news given the trade policy of President Donald Trump, which is a major source of uncertainty for the Fed and the global economy.
To attract more manufacturing in the United States, Trump has struck nations around the world, especially China, with extremely high prices of + 145%. Asset insisted that the Fed will lower rates. However, just like their first position, they need more time to see how things are going.
Fed sees a limited economic activity
The president of the Fed, Jerome Powell, said: “Despite increased uncertainty, the economy is still in a solid position […] We believe that the current position of monetary policy leaves us well placed to react in a timely manner to potential economic developments. »»
New York Fed President John Williams told Bloomberg that in the current state of Fed policy, the United States is a good place. To avoid guess where monetary policy would go, it would go added“Let us collect more data, information on what is happening with commercial policy” and how it affects the economy, then the Fed can decide what should be its next stages of politics.
In a separate interview, Fed governor Adriana Kugler said that the strong economy gives time to do more work to reduce inflation before considering the next step. Williams and Kugler both declared that the current interest rate policy limits economic activity of a small amount.
On the other hand, economists think that these import taxes will increase inflation even more than it is already, which is greater than the objective of the federal reserve by 2%. They are also likely to slow down economic growth and worsen unemployment. But it is not clear how it will all happen. Trump's constant changes at prices and promises that many commercial transactions are on the way to make things even more confusing.
April consumer price index to give the Fed an image of the effects of prices
The possible effects of prices on the economy pose major problems for the Federal Open Market Committee, which establishes interest rates at the American Central Bank. Monetary policy is supposed to maintain low inflation and the strong labor market. This could make it difficult for civil servants to decide on which part of their work on which to concentrate the most.
Fed officials said it was difficult to balance their two functions, but they all think that keeping inflation pressure is very important.
Prices can help the economy, but reduce them too early could increase in inflation. Stagflation, that is to say when there is weak growth and high inflation at the same time, is the worst thing that can happen for central bankers because they can do nothing.
Although officials insist that they need time, when the US government publishes its consumer price index for April Tuesday, the Fed could have its first overview of how prices reach prices.
“Prices should start to affect inflation data in April, with clearer evidence in May and June,” Bank of America’s economists said on Friday in a research note. “We expect inflation focused on prices to be temporary, but our conviction is low because there are good reasons why this could be more persistent than expected.”
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