US Fed Holds Key Interest Rate Steady as Expected... "Caution on Both Inflation and Employment"

Base Interest Rate Held Steady at 5.25~5.5% for 8 Consecutive Times
"Caution on Rising Unemployment and Employment Risks" Phrase Added
Monetary Policy Direction Shift Anticipated

The U.S. Federal Reserve (Fed) has, as expected, kept the benchmark interest rate unchanged for the eighth consecutive time. The Federal Open Market Committee (FOMC) policy statement newly included language noting a rise in the unemployment rate and a commitment to pay attention not only to inflation risks but also to employment risks. Although there was no hint of the rate cut expected by the market in September, it is being evaluated as a signal of a shift in monetary policy direction amid signs of cooling in the U.S. labor market.

On the 31st of last month (local time), the Fed announced through the FOMC regular meeting policy statement that it would keep the federal funds rate unchanged at 5.25-5.5%. This marks the eighth consecutive hold following decisions in September, November, and December of last year, and January, March, May, and June of this year. The interest rate gap with Korea was maintained at 2 percentage points at the upper bound.

In the policy statement, the Fed assessed, "Recent indicators suggest that economic activity continues to expand at a solid pace," and "Job gains have moderated and the unemployment rate has moved up but remains low."

The phrase "unemployment rate has moved up" was newly added to the policy statement on this day. The policy statement released after the June FOMC meeting only included the phrase that the unemployment rate "has remained low."

Regarding the inflation situation, the Fed stated, "Inflation has eased from last year but remains somewhat elevated," and "There has been some further progress toward the 2% target in recent months." The term "modest" used previously to describe additional inflation progress was replaced with "some."

The Fed also reaffirmed its commitment to achieving both maximum employment and the 2% inflation target.

The Fed emphasized in the policy statement, "We continue to assess that the risks to achieving our employment and inflation goals are more balanced," and "The economic outlook remains uncertain, and the Committee is paying attention to risks on both sides of its dual mandate."

The replacement of the phrase "paying close attention to inflation risks" in the June FOMC policy statement with "paying attention to risks on both sides (employment and inflation)" appears to signal a significant shift in the Fed's monetary policy direction. Analysts interpret this as an indication that the Fed may soon begin cutting rates amid successive signals of labor market slowdown.

The Fed stated in the policy statement, "Should risks arise that could impede the Committee’s goals, we are prepared to adjust the stance of monetary policy appropriately," and "The Committee will make judgments based on a wide range of factors including labor market conditions, inflation pressures and inflation expectations, as well as financial and international developments."

Following the Fed's decision to hold the benchmark interest rate steady, the New York Stock Exchange has expanded its gains. The Dow Jones Industrial Average, composed of blue-chip stocks, was up 0.72% compared to the previous close as of 2:26 p.m. The S&P 500 and Nasdaq indices rose 0.72% and 1.68%, respectively.

This content was produced with the assistance of AI translation services.