If inflation continues to build, the Fed won’t be able to maintain neutral stance for long

FEDERAL Reserve chairman Jerome Powell pulled off a pretty neat magic trick on Wednesday (May 1) – he somehow caused the interest rate-cut promise he had made at the central bank’s March meeting to disappear, without the market seeming to notice too much.

The Fed kept rates steady at their highest level in 20 years, at between 5.25 and 5.5 per cent. A few weeks ago, there was hope that the central bank would use this meeting to introduce a rate cut and to dance on the grave of inflation.

Instead, in its statement, the Fed acknowledged a recent reversal in fortunes on price increases but insisted the most likely trajectory for prices was still downward. All the evidence pointed to the likelihood that the central bank’s actions in 2022 and 2023 were cooling the economy down, the Fed said.