MercoPress. South Atlantic News Agency

US monetary policy appears appropriately calibrated, says Fed

The US Federal Reserve injected 75 billion US dollars liquidity into the banking system on Tuesday but a monetary “pause” in the near future is possible as the central bank's interest-rate reductions take effect.

"Monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term'' said the Fed vice chairman Donald Kohn in a speech in New Orleans. Since last December the Fed has supplied 510 billion US dollars in short term auctions to commercial banks plus drastically reducing the benchmark interest rate 3.25 percentage points, from 5.25% to 2%, since September to aid growth. "Uncertainty about how credit conditions will evolve and how businesses and households will react to changing terms and conditions means that we can have even less confidence than usual in our economic forecasts" said Kohn addressing the National Conference on Public Employee Retirement Systems. Low interest rates, a gradual easing of financing conditions and tax rebate checks should boost growth over the next 18 months, he said. "The most likely scenario over the next year or so is one in which US economic activity firms during the second half of this year and then gathers some strength in 2009'' Kohn with gradual, improvement in financial markets. Rising commodity prices add to inflation pressures and damp demand for other goods, Kohn said. "A tendency for increases in commodity prices to become a factor in ongoing pricing and wage- setting more generally would be a worrisome development that would over time tend to undermine economic welfare".