US Fed says 'greater confidence' needed to start rate cuts despite easing inflation

By Ovunc Kutlu

ISTANBUL (AA) - The US Federal Reserve said it needs "greater confidence" to start lowering interest rates despite softening inflation, according to its Monetary Policy Report.

"With labor market tightness continuing to ease gradually and inflation easing over the past year, the risks to achieving the Committee’s employment and inflation goals have moved toward better balance," said the report submitted semiannually to the US Congress.

"The Committee remains highly attentive to inflation risks and is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials, like food, housing, and transportation," it said.

The Federal Open Market Committee (FOMC) decided on June 12 to keep the federal funds rate unchanged between the 5.25% to 5.5% target range as widely expected, which is the highest in 23 years.

The decision marked the fourth time the Fed has skipped a rate hike this year. The central bank last raised rates by 25 basis points on July 26 of the previous year.

"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," said the report.

"Reducing policy restraint too soon or too much could result in a reversal of the progress on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment," it added.