The US Federal Reserve reduced policy rates on Thursday (Manila Time), with Chairman Jerome Powell saying the move was a “risk-management cut.”
The Fed reduced the federal funds rate by 25 basis points (bps) to between 4 to 4.25 percent, marking the year’s first rate cut. The last time the Fed reduced rates was on December last year.
Powell made the remark responding to a question on whether the decision to lower the rate can be viewed as a “risk-management cut.” He answered: “Yeah, I think you could think of this in a way as a risk-management cut.”
“But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem,” he added.
Powell said that downside risks to employment appear to have risen and the slowing down of the job market was caused mostly by lower immigration and reduced labor force participation.
On the tariff issue and its effect on inflation, Powell said changes to government policies are expected not to remain static.
“Higher tariffs have gone to push up some prices in some categories of goods but their overall effect on economic activity and inflation remain to be seen,” he said.
The US job market has shown signs of weakness in the past months with job additions slowing down and unemployment rising to 4.3 percent in August.
Meanwhile, the Consumer Price Index (CPI) increased slightly to 0.4 percent month-on-month in August, exceeding expectations. Year-on-year, the CPI rose 2.9 percent that was in line with expectations.
ANADOLU PHOTO