US Fed keeps rates steady to tame inflation

The Federal Open Market Committee (FOMC) of the US Federal Reserve at its meeting on Thursday decided to maintain the Federal funds rate at 5.25 to 5.50 per cent, for a sixth consecutive time, saying there is no scope for a rate cut until inflation rate moves towards the 2 per cent level.

The committee said it would assess all incoming data and the evolving economic outlook as well as the possible risks, before considering any adjustments to the federal funds rate.

Also, the Fed will go slow on reducing its holdings of Treasury securities and mortgage‑backed securities. Beginning June, the committee will lower the monthly redemption of Treasury securities from $60 billion to $25 billion. The monthly redemption cap on agency debt and agency mortgage‑backed securities will remain at $35 billion and any principal payments in excess of this will be ploughed back into Treasury securities.

Recent data suggest continued expansion of US economic activity along with steady gains on the employment front. Unemployment rate has remained low and inflation has shown signs of easing from its elevated levels.

The FOMC said it will continue to focus on achieving maximum employment and inflation rate of 2 per cent over the longer term, even as the economic outlook remains uncertain.

The Fed also released is Financial Stability Report which reviews vulnerabilities in the US financial system, including valuation pressures, borrowing by businesses and households, financial-sector leverage, and funding risks. It also highlights several near-term risks that, if realised, could interact with these vulnerabilities.