USA monetary policy - Part.1

In the past two weeks, the Federal Reserve has maintained its cautious stance on monetary policy, opting to keep the federal funds rate within the 4.25% to 4.50% target range. This decision reflects ongoing concerns about economic momentum and inflationary pressures. The Federal Open Market Committee (FOMC) acknowledged that while the labor market remains solid, recent indicators suggest that economic growth has moderated, with GDP increasing at an annual rate of about 1% in the first half of the year, compared to 2.8% in the second half of 2024.

Inflation continues to be a focal point of the Fed's policy considerations. Recent data indicate that total personal consumption expenditures (PCE) inflation moved up to around 2.5% in June, with core inflation rising to approximately 2.7%. Despite these increases, the Fed perceives the risks to inflation as balanced, allowing for a wait-and-see approach. This approach is also influenced by concerns over potential weaknesses in the labor market, as private-sector payroll growth appears to be slowing, and hiring rates are low.

Looking ahead, the Fed is conducting its first five-year review of its monetary policy framework, initiated in 2020. This review aims to assess the effectiveness of current strategies, tools, and communication practices in achieving the dual mandate of maximum employment and price stability. The review process includes gathering perspectives from various stakeholders and analyzing economic data to inform potential adjustments to the Fed's approach.