JAKARTA - The Fed signaled it would raise interest rates one more time by a quarter of a percentage point before the end of this year. The signal came amid concerns that inflation was strengthening again.
According to a Kyodo News report, quoted on Thursday, June 18, the direction of the policy marked a change in the attitude of the US central bank under its new chairman, Kevin Warsh, who for the first time chaired the Fed's monetary policy meeting.
However, the Fed's latest economic projections show that interest rates at the end of 2027 and 2028 are likely to be cut again. Previously, policymakers had signaled a rate cut by the end of this year.
Under Warsh, the Fed also stopped the practice of forward guidance in statements after meetings. Forward guidance is a central bank's indication or signal regarding the direction of future policy.
Warsh previously criticized the practice. He assessed that forward guidance could limit the Fed's flexibility in making decisions.
In a decision announced Wednesday, the Fed kept its benchmark interest rate. The federal funds target rate, which is the overnight interest rate between commercial banks, remains in the range of 3.50-3.75 percent. That level has not changed since December.
The decision was taken when a number of other major central banks, including the Bank of Japan, raised their policy rates in the past week. The move was made amid inflationary risks due to rising crude oil prices after the US-Israeli war against Iran.
"We recognize that inflation has run far above the Fed's long-standing target of 2 percent. It has been going on for more than five years. High prices continue to be a burden on the American people," Warsh said at his first press conference as Fed chairman after the Federal Open Market Committee or FOMC meeting.
"However, the past that has just happened does not have to be a determinant of the future. I am pleased to report that FOMC members are clear and unanimous. This committee will bring price stability," he added.
Warsh replaced Jerome Powell at the end of May. He entered the two-day FOMC meeting with two major challenges, namely rising inflation and open pressure from President Donald Trump, who repeatedly called for lower borrowing costs.
Kyodo News also reported that the US Department of Labor last week said consumer prices in May jumped 4.2 percent compared to the same period a year earlier. The figure was the largest increase in more than three years.
The spike comes after crude prices skyrocketed following Iran's move to nearly close the Strait of Hormuz, one of the world's most important energy shipping routes.
Coupled with a better-than-expected May employment report, the conditions strengthened market participants' expectations that the Fed could raise its benchmark interest rate before the end of this year.
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