Washington, (Reuters) .- The Federal Reserve maintained its key interest rate without movement, but said that the risks of greater inflation and unemployment had increased, cloudying even more economic perspectives at a time when the United States Central Bank dealt with the impact of donald Trump’s government tariff policies.
The economy in general “has continued to expand at a solid pace,” said the Fed in its monetary policy statement, attributing a drop in the production of the first quarter to record imports, since companies and homes rushed to anticipate the new import taxes.
The labor market is also “solid” and inflation remains “somewhat high,” said the Federal Open Market Committee of the Central Bank, repeating the language he used in his previous statement.
However, he now highlighted risks that put Fed to difficult decisions in the coming months.
“The uncertainty about economic perspectives has increased even more,” the FOMC said at the end of a two -day meeting in which those responsible unanimously agreed to maintain the reference interest rate of the Central Bank between 4.25% and 4.50%.
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“The committee is attentive to the risks on both sides of its double mandate and considers that the risks of increasing unemployment and inflation have grown,” said the statement.
In a press conference after the FOMC meeting, the president of the FED, Jerome Powell, said that “despite the greatest uncertainty, the economy is still in a solid position.”
He pointed out that the Fed policy will have to be agile. “We believe that the current orientation of monetary policy leaves us well positioned to respond in a timely manner to possible economic events,” he said.
Powell also pointed out that commercial policy remains a source of uncertainty that reinforces the need for the Fed to be in a way of waiting and seeing.
“I don’t think we can say (…) what the way this will take,” he said, adding: “I think there is great uncertainty about, for example, where tariff policies are going to establish.”
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The management of monetary policy will depend on which of these risks is developed or, in the most difficult result, whether inflation and unemployment increase together and force the Federal Reserve to choose which risk it is most important to try to compensate for monetary policy.
A weaker labor market would reinforce the arguments in favor of cutting interest rates; higher inflation would require monetary policy to remain restrictive.
“At the moment, the Federal Reserve remains waiting for uncertainty to be cleared,” wrote Ashish Shah, director of Public Investments at Goldman Sachs Asset Management in New York, in comments sent by email.
The Fed monetary policy rate has remained unchanged since December, while officials try to estimate the impact of President Donald Trump’s tariffs, which have raised the perspective of greater inflation and weaker economic growth this year.
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