MOSCOW, August 1. /Basereporter.com/. The Federal reserve system (FRS) that perform the functions of the Central Bank left the benchmark interest rate at the previous level of 1.75-2%. This is stated in a statement of the financial regulator following the meeting of its leadership.
The market was almost 100% sure that the rate will be maintained at the same level. In particular, interest rate futures show the probability of saving amounted to 82.4%, and the probability of its increase on 25 b.p. was only 17.6 percent. In addition, only 1 of the 81 surveyed by Bloomberg experts expect a rate hike by 25bps.p. and all the other economists had expected the rates to the same level.
14 December 2016, the fed raised the benchmark interest rate from 0.25-0.5% to 0,5-0,75%. It was the second increase after 2008. The decision was due to the improvement of forecasts of the fed for the unemployment rate, inflation, and GDP growth of the USA in 2016. Later on March 15, 2017, the fed raised the rate c from 0.5-0.75% to 0.75 to 1.0%, June 14 – 1-1,25% and 13 December to 1.25-1.5 per cent. In the current year on 21 March, the fed raised the rate by another 25 b.p. – up to 1.5-1.75% and then again at the last meeting on 13 June to 1.75-2%.
The growth of the economy
The fed also noted the high rate of growth of the American economy, and also pointed to a further rise in interest rates.
“The labor market continues to strengthen, while economic activity is growing rapidly,” the document reads. It also States that the policy of further gradual rate hikes will be “to match the sustained growth in economic activity, favourable conditions in the labour market and inflation”, the target which is 2%. In June, the Central Bank stated “sustainable pace” of U.S. economic growth.
The Central Bank also stressed that “monetary policy remains soft.” “Household spending and investments in fixed capital increased significantly,” the document reads. The financial regulator says the dynamic growth in the number of jobs in recent months and the drop in the unemployment rate. The Committee identified the risks to the prospects of the U.S. economy “broadly balanced”.
Criticism of the President
According to the Vice-President of the USA Michael Pence, the American leader Donald trump respects the independent status of the fed, but doesn’t want her policy had a negative impact on the economy. The head of state criticized the fed for raising interest rates. This step, according to the President, may lead to slowing of the American economy and harm the foreign trade of the country.
Earlier, the head of the fed Jerome Powell spoke in favor of a gradual increase in interest rates. Powell pointed to the high rate of growth of the American economy. He expects that in the coming years the level of inflation in the US will be in the region of the target rate of 2%.