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US sees conditions for tightening monetary policy

by | May 25, 2021

MONETERING POLICYWashington:(IANS) Most US Federal Reserve officials believe conditions for tightening monetary policy were approaching but failed to give clear signals on the timing of the first interest rate hike in nearly nine years.

“Most (Fed officials) judged that the conditions for policy firming had not yet been achieved but they noted that conditions were approaching that point,” according to the minutes of the Fed’ s monetary policy meeting on July 28 and 29 which are published on Wednesday, Xinhua reported.

The minutes left mixed signals on whether the Fed officials decide to raise the interest rate on next monetary policy meeting in September or not. Many Fed officials, including the Fed chairwoman Janet Yellen, has repeated that it’s appropriate to raise the benchmark interest rate this year. Market investors widely see September or even later as the most likely time for a Fed rate increase.

Some officials worried that the current low inflation and the inflation outlook might not meet the central bank’s one of the conditions for initiating a policy tightening and a premature tightening could further put downward pressure on the inflation and economic activity.

The Fed considers price stability and full employment as its dual mandate in managing the monetary policy. The Fed’s preferred inflation gauge, the price index for personal consumption expenditures, has been below the central bank’s 2 percent objective for years.

However, some officials viewed the economic conditions for beginning to raise interest rate as having been met or were confident that they would be met shortly, as they believe that the stance of monetary policy was very accommodative and a delayed rate hike could overshoot the central bank’s inflation target and have adverse impact on financial stability.

“Members generally agreed that additional information on the outlook would be necessary before deciding to implement an increase in the target range,” said the minutes. The Fed has kept its benchmark short-term interest rate near zero since December 2008.

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