MNI: Fed: Policy Well Positioned To Respond To Risks

U.S. monetary policy is well-positioned to respond to persistent inflation on one side and a weaker-than-expected labor market on the other, and the central bank is still waiting for greater confidence that inflation is moving steadily toward its 2% goal before lowering interest rates, the Federal Reserve said in a semiannual report to Congress on Friday.

Inflation eased modestly so far this year, the Fed said, noting in particular a lack of further progress on disinflation in core nonhousing services prices and higher energy prices amid concerns over conflicts in the Middle East and OPEC production cuts. Housing inflation also stayed high, but the Fed said market rent measures indicate it should return to pre-pandemic levels at some point. Softening labor demand and expanding supply also suggest disinflation will resume for nonhousing services, the Fed said.

Simple monetary policy rules are currently calling for levels of the federal funds rate that are close to or below the current target range, the Fed also noted. (See: MNI INTERVIEW: Fed Already Well Behind The Curve On Cuts - Tracy)