US Federal Reserve maintains benchmark interest rate

The US Federal Reserve on Wednesday held its benchmark interest rate, despite President Donald Trump’s pressure to reduce borrowing costs.

At the end of the two-day meeting of the Federal Open Markets Committee, the US central bank announced that it had decided to maintain the federal funds rate at 4.25 per cent to 4.5 per cent. 

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The decision drew dissents from two of the US central bank's governors, both appointees of President Donald Trump who agree with him that monetary policy is too tight.

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Analysts stress that Trump’s suggestion of cutting rates to as low as one per cent is far out of line with economic realities.

While the US economy expanded at a higher than expected pace of 3 per cent in Q2, the Fed said it remains wary about inflation pressures, which still remains above the target of 2 per cent.

"The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated," the central bank said in a policy statement released after the Federal Open Market Committee voted 9-2 to keep its benchmark overnight interest rate steady in the 4.25%-4.50% range for the fifth consecutive meeting.

The policy statement did note that economic growth "moderated in the first half of the year," possibly bolstering the case to lower rates at a future meeting should that trend continue. But it also said that "uncertainty about the economic outlook remains elevated" with risks to both the Fed's inflation and employment goals, language that has anchored the central bank's reluctance to cut rates until the path of inflation and jobs becomes clearer.

This week's meeting marks the first time in more than 30 years that two members of the Fed's seven-person Washington-based Board of Governors voted against a rate decision at the consensus-driven central bank, and it will likely stoke debate about how Trump's public pressure to cut rates is playing out at an institution designed to set monetary policy independent of demands from elected officials.

Read the full FOMC statement here.

[With inputs from Reuters]

Somshankar Bandyopadhyay

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somshankar@khaleejtimes.com

Somshankar Bandyopadhyay is a News Editor with close to three decades of experience. Currently, he manages the business section, ensuring that the top economic and business news of the day reaches its readers.