US Fed Meet: Why FOMC Kept Interest Rates Unchanged When Employment And Inflation Goals Continue In Harmony?

US Federal Reserve has kept key interest rates unchanged despite its employment and inflation continue in harmony. FOMC seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. And it said, the two indicators continue to move in better balance. Yet, on July 31, Fed chair Jerome Powell and his panel decided to keep target range for the federal funds rate unchanged at 5-1/4 to 5-1/2 percent.

In its statement, FOMC highlighted that recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low.

Fed also pointed out that inflation has eased over the past year but remains somewhat elevated. It added, "In recent months, there has been some further progress toward the Committee's 2 percent inflation objective."

Accordingly, FOMC reiterated its aim to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Adding it said, "The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance."

In support of its goals, FOMC said, "the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent."

When both employment and inflation goals in better balance, then why did Fed decided to not make any changes in key rates?

The reason is that Fed still sees economic outlook as uncertain and would rather prefer a further wait-and-watch mode.

FOMC said, "The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

In considering any adjustments to the target range for the federal funds rate, Fed said, "the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."

Additionally, Fed said that the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.

Explaining further in regards to assessing the appropriate stance of monetary policy, FOMC stated that it will continue to monitor the implications of incoming information for the economic outlook.

Adding it said, the committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.

Furthermore, FOMC said, " The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Austan D. Goolsbee voted as an alternate member at this meeting.

The policy outcomes are in line with street estimates.

The minutes of meeting will be announced on August 21.