Minutes of the latest monetary policy meeting of the US Federal Reserve showed some of the participants noted that the probability of the economy entering a recession in 2023 remained elevated. “Moderating inflation in the United States and improving global growth prospects lifted market sentiment. While most Desk survey respondents expected subdued growth or a mild recession in 2023, market participants continued to see notable uncertainties ahead, including prospects for a deeper downturn or the potential for more persistent inflation,” the minutes read.
“Participants agreed that cumulative policy firming to date had reduced demand in the most interest-rate-sensitive sectors of the economy, particularly housing. Participants observed that growth in economic activity in 2022 had been below its longer-run trend and expected that real GDP growth would slow further in 2023.” The US Federal Reserve approved a quarter-point interest rate hike in January 31-February 1 meeting, to contain inflation.
The US central bank’s policy rate is now in a target range of 4.50-4.75 per cent, the highest level in 15 years, and notably, it was near zero in the early part of 2022. The sluggish growth in real private domestic spending expected this year and the persistently tight financial conditions were seen as tilting the risks to the downside for the economy, it said.
Coming to the inflation in the US, consumer inflation in the US moderated to 6.4 per cent in January from 6.5 per cent in December, and 7.1 per cent the previous month but still is way above the 2 per cent target. At the latest monetary policy meeting, a few participants, according to the minutes, favored raising the target range for the federal funds rate by 50 basis points, noting that a larger increase would more quickly help in achieving price stability.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline. (ANI)
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