[Asia Economy New York=Special Correspondent Kim Bong-su] It has been confirmed that the U.S. Federal Reserve (Fed) decided to keep the benchmark interest rate unchanged as of December last year and evaluated that maintaining the current interest rate stance for a time is appropriate. However, it has been noted that there are also voices of concern within the Fed regarding the low interest rates.
According to the minutes of the Federal Open Market Committee (FOMC) regular meeting held on the 10th and 11th of last month, released by the Fed on the 3rd (local time), participants agreed that the growth of the U.S. economy could weaken more than expected due to the U.S.-China trade conflict and global slowdown. Accordingly, the participants judged that it was appropriate to maintain the current low interest rate rather than hastily reversing the rate cut stance maintained last year.
Earlier, the Fed lowered the interest rate by 25 basis points (1bp=0.01 percentage point) three times in July, September, and October last year for these reasons, reducing the U.S. benchmark interest rate to 1.50?1.75%, and then halted the rate cut streak and kept the rate unchanged at last month's FOMC.
According to the dot plot released immediately after the December FOMC, out of a total of 17 members including non-voting members, 13 forecasted that the interest rate would remain unchanged this year, and 4 expected a 25bp increase. No members predicted an additional rate cut.
Participants agreed that maintaining the current interest rate for a time at the December FOMC would help with the global conditions that burden economic activity and the recovery of inflation to the target range of around 2%.
The members also judged that "monetary policy support makes sustained economic expansion, a strong labor market, and inflation around the 2% target the most likely outcomes."
However, the minutes stated, "Members assessed that the global developments related to international trade and weakening economic growth overseas continue to pose some risks to the economic outlook."
The minutes also added, "Various members expressed concern that indicators show long-term inflation expectations are too low."
Concerns were also raised about maintaining the low interest rate level for an extended period. The minutes stated, "Some participants expressed concern that keeping interest rates low for a prolonged period could encourage excessive risk-taking and trigger imbalances in the financial sector," adding, "There were also concerns that low interest rates could cause the next recession to unfold in a more severe form than before."
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