KUALA LUMPUR: The US Federal Reserve (Fed) is nearing the end of its tightening cycle after it raised Fed funds rate (FFR) by an additional 25 basis points (bps) to a range of 5.25 per cent to 5.50 per cent, the highest in 22 years, MIDF Research said.
The Fed also reiterated its commitment to shrink the size of its balance sheet by reducing its holdings of securities as part of its overall tightening measures to contain inflation.
“We understand why the Fed reiterated its mandate to maintain price stability. It is so that inflation will continue to decelerate and future inflation expectations will be anchored,” the research firm said in a note today.
It said the Fed will keep its policy direction open and that its decision will be influenced by changes in overall macro economy and price movement.
The research firm added that the need for more rate hikes has been reduced as the FFR is already at a restrictive level and is already higher than the recent headline CPI (consumer price index) inflation of three per cent year-on-year. The Fed has an inflation target of two per cent.
However, if inflation remains elevated and the US economy and job market were to be stronger than expected, more rate hikes would be possible, said MIDF Research.
It was reported that the latest Fed staff forecast no longer predicts the US economy would experience a recession this year although the Federal Open Market Committee did not issue an updated projection on the US economic growth and inflation. – BERNAMA
