Fed holds interest rates as US inflation softens

The Federal Reserve voted to hold overnight interest rates unchanged at their range of 1.00% and 1.25% at the Federal Open Market Committee's July 25-26 meeting, matching expectations.

FOMC members pointed to the data available to the Committee since the June 13-14 meeting, as the labor market kept improving while economic activity accelerated, as labor gains tightened a bit while remaining solid in the medium term, and the unemployment rate fell. 

Members said household spending rose in recent month, as fixed-rate investment stabilized, while inflation gauges in the last 12 month moved away from the bank's long-term 2% target, while still below that target when excluding energy and food prices.

Members asserted the Committee's commitment to boost job opportunities and stabilize prices, as members still project gradual tightening of the monetary policy to allow the economy to expand moderately.  

Inflationary pressures are expected to steady below 2% in the medium term, while considering short-term risks as roughly balanced, as the Committee continues to monitor inflation gauges and global economic and financial developments closely. 

As of 07:10 GMT, the dollar index, tracking the greenback against a basket of currencies, rose to 94.09 from the opening of 94.05, which is also the intraday low, with an intraday high at 94.29.

Similarly, members said that taking into consideration the labor conditions and current inflation rates, the Committee decided to hold interest raters into the range of 1% to 1.25 percent, while keeping the monetary policy accommodative, offering further support to the labor sector and nudging inflation firmly towards 2%. 

The Committee said it's assessing the current and projected economic conditions, with an eye towards achieving its targets of full employment and 2% inflation, while taking into consideration a wide group of data and economic information, including the labor market conditions and inflation indices. 

Members expect the economic conditions to develop in a way that allows for gradual tightening of the policy, with a path that ends just below the projected interest rates levels in the long term, while reaffirming that the actual path of short-term overnight interest rates depends on aforementioned economic projections and data. 

Otherwise, the Committee is carrying on its current policy of reinvesting its holdings of debt, mortgage-backed securities, and treasury bills and selling them in public auctions to trim them down from their current high levels in the long term, and in order to keep the financial conditions accommodative.

The FOMC expects to start normalizing the balance sheet this year to cut down on high levels of debt and mortgage-backed securities held by the Federal Reserve, as all the members agreed on the principles of normalizing the policy through the steps detailed in the additional document submitted alongside the usual bank statement in this meeting. 

The Committee wants to cut its monetary holdings gradually by reinvesting them through the open market system, while expecting the treasury bill sales to reach $6 billion at the start of the process, while rising to $30 billion a month in 12 months.

As for mortgage-backed security sales, they will start at $4 billion and advance to $20 billion a month after a year of the process. 

The Committee said that gradual cuts in the bank's debt holdings will trim down the reserve balance to way below recent years, while still remaining above the levels seen before the global financial crisis. 

Members are aiming to change the targeted range for federal money as the main way to change the policy, while standing to downgrade their interest rate target in case economic conditions deteriorated. 

Finally, the Committee asserted it stand ready to use all the tools available to it to increase the balance sheet again if conditions called for heavy easing policies that couldn't be satisfied only with cutting interest rates on federal money.