However, the Fed’s commentary did not render any future direction on interest rates, leaving more to ponder.
Beyond the headlines, what is notable is that three members of the 12-member Fed’s policy committee voted for a rate hike of 25 basis points.
At a post policy briefing, Federal Reserve Chairman Kevin Warsh said inflation remains elevated relative to the Committee’s 2 percent goal and assured that the Fed will deliver price stability. He did not offer any future guidance, but said the US central bank “will not hesitate to act” wherever necessary.
The commentary highlights uncertainty over current geopolitical developments, mainly the resurgent West Asia conflict.This has led to an increase in crude prices and inflationary pressures.
US President Donald Trump has been exerting pressure on the Fed to reduce interest rates.
While the Fed’s Chair did not give a definite answer on the policy direction, a few months back his counterpart Reserve Bank of India’s Sanjay Malhotra gave hints about monetary policy making in uncertain times. He had emphasized that in uncertain times it is necessary to maintain a broad policy stance by avoiding firm commitments on the future path of policy.
The monetary policy committee (MPC) of the Reserve Bank of India will meet in the first week of August to decide on the policy rates. It will have its task cut out.
The Union Finance Ministry in its July economic review, said that upside risk to inflation, fiscal and current account deficits and downside risk to growth remain in the wake of the persistent standoff in the Gulf region.
A 10 per cent jump in global crude oil prices may lead to a 30 basis points increase in inflation and negatively impact GDP growth by 15 basis points.
The inflationary pressures are evident in terms of retail inflation and input cost escalation for companies. Patchy monsoon and El Niño concerns add to the woes.
The moot question is what the RBI MPC’s decision will be? The expectations are that it will maintain a status quo. Will it spring a surprise? One has to wait and watch.