Not the right time to raise interest rates, says US Fed

The time is not right yet to raise US interest rates as the Federal Reserve is still focused on buying bonds to support an economy recovering from the COVID-19 pandemic, Chairman Jerome Powell said.

"Right now, it's not the ideal time to think about raising interest rates; instead, the Fed is focusing on asset purchases," Powell said on Wednesday (local time), referring to the central bank's monthly commitment of 120 billion dollars to support the economy. "In an ideal world, you wouldn't boost rates before starting to taper."

The Federal Reserve left the interest rates unchanged after a two-day policy meeting for July held by its Federal Open Market Committee (FOMC). US rates have been kept at a record low of between zero and 0.25 per cent by the FOMC since the coronavirus outbreak in March 2020.

Powell cautioned that US inflation could run higher and more persistent in the near term than forecast as the economy adjusts to bottlenecks caused by the pandemic.

"Inflation could turn out to be higher and more persistent than we expect," Powell said. "It's clear that at this time inflation is actually running above 2 per cent, has been and will be at least we expect in coming months before returning down toward our target."

Powell said the FOMC indicated at the July meeting that it would continue to buy at least 80 billion dollars of Treasury securities and 40 billion dollars of agency mortgage-backed securities each month until it achieves "substantial further progress" in its target for maximum employment among Americans and sustainable inflation.

The US economy grew by an annualized rate of 6.4 per cent in the first quarter of 2021, after a 3.5 per cent contraction for all of 2020 due to shutdowns and other disruptions caused by the coronavirus pandemic measures.

The Federal Reserve has said it envisions a 6.5 per cent expansion for all of this year, although some officials at the central bank have more ambitious expectations, forecasting growth of up to 7 per cent.

However, prices have soared and the Personal Consumption Expenditure Index - the Federal Reserve's preferred gauge for inflation - increased by a multiyear high of 3.7 per cent in the 12 months to June when stripped of volatile food and energy prices.

The US Consumer Price Index, a more popular inflation gauge used worldwide, grew by 5.4 per cent over a one-year period in June for its largest increase in 13 years.

The Federal Reserve has acknowledged the price pressures but said they are transitory and will fade as the economy makes a full recovery. (ANI/Sputnik)

( With inputs from ANI )

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