Fed: rates unchanged for an extended period

In the statement released at the end of last week monetary policy meeting, the Fed confirmed the pledge to leave rates unchanged for an “extended period” due to low rates of resource utilization, subdued inflation trends, and stable inflation expectations. As in the two previous meeting, the president of the Federal Reserve Bank of Kansas City Thomas Hoening dissented on maintaining this pledge as he believed “it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly”. Albeit confirming that rates will still remain unchanged for some months, the Fomc gave an upbeat picture on US economic outlook, indicating that labour market is improving (it was seen as stabilizing in March) and that consumer spending has picked up. The Fomc reaffirmed that inflation is likely to remain subdued for some time. In the statement released at the end of the meeting the Fomc clearly confirmed that despite economic activity improved in the last few months a rate hike is not on the card. Only a sustained improvement in labour market will be the trigger for the beginning of a tightening monetary policy. Moreover it seems very likely that the Fed will consider the risk to increase rates too later lower than the risk to increase them too early.