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The United States Federal Reserve does not lower interest rates. “Inflation has slowed significantly but remains too high”

The North American central bank, the Federal Reserve, decided not to move forward yet with the first interest rate cut, despite the fact that the latest data points to a better inflation trend.

The North American central bank, the Federal Reserve (Fed), decided not to move forward this Wednesday with the first interest rate cut of this cycle, despite the fact that the latest data points to a better inflation trend. The annual inflation rate slowed in May, in the US, to 3.3%, one tenth less than the previous month.

The decision was announced this Wednesday, at the end of the two-day meeting of the North American central bank: the reference interest rate remains in the range between 5.25% and 5.5%. In the usual press conference after the decision, Jerome Powell, the president of the Fed, commented that “Inflation has slowed significantly but remains too high.“.

In addition to controlling inflation, the Federal Reserve also has among its mandates to stimulate economic growth and the labor market. “The pace of job growth remains strong, although slower than in the first quarter,” Powell said, noting that “the unemployment rate remains low.”

The interest rates decided by the Federal Reserve directly affect the dollar, but given the importance of the currency in global financial markets, they are decisions that affect monetary flows around the world. The ECB did not wait for the Federal Reserve to start lowering interest rates last week, so the fact that inflation in the United States is showing signs of slowing is something that takes pressure off the euro zone. This is because the ECB should be able to make further interest rate cuts without fear of creating too large a divergence in monetary policy relative to the US.

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In the monthly comparison, prices in the US were, on average, identical to those of April and the evolution of the index was 0%, compared to 0.3% the previous month. The inflation figures, released this Thursday morning, were better than expected, given that analysts were predicting, on average, a monthly variation of 0.1% and stable interannual inflation of 3.4%.

Subjacent inflation, which excludes the most expensive prices for food and energy, also evolved favorably and was 0.2% in the monthly comparison (0.3% in April) and 3.4% in comparable terms (3.7 % in April). Analysts expected 0.3% and 3.5%, respectively.

“Price pressure remains high, but has shown a welcome slowdown,” said Rubeela Farooqi, chief economist at High Frequency Economics, quoted by AFP. Despite the positive trend, the inflation rate remains well above the 2% idealized by the North American central bank.

Source: Observadora

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