Fed policy analysis: Following a two-day meeting, the US Federal Reserve opted to maintain its benchmark overnight interest rate within the range of 5.25 per cent to 5.50 per cent.

Policymakers are navigating uncertainties regarding the timing of potential rate cuts, emphasising the importance of further data to confirm the trajectory of inflation, even if it's a gradual decline.

Here's a breakdown of the key economic indicators they are closely monitoring:

Employment

The latest employment report, released on May 3 with the next one due on June 7, revealed that US firms added 175,000 jobs in April, slightly below expectations. While this figure marked a dip from pre-pandemic averages, the unemployment rate remained below 4 per cent for the 27th consecutive month. Despite the healthy job market, the slight decline in job growth suggests a potential balance in the labour market, easing concerns about an overheating economy.

Job openings

Fed Chair Jerome Powell pays close attention to the Job Openings and Labour Turnover Survey (JOLTS), which tracks the gap between labour supply and demand. The ratio of job openings to jobseekers decreased in March, nearing pre-pandemic levels, indicating a more balanced labour market.

Inflation

The Personal Consumption Expenditures (PCE) price index, a key metric for the Fed's inflation target, showed a 2.7 per cent annual increase in March, slightly up from the previous month. Core inflation, excluding volatile food and energy prices, also rose to 2.8 per cent. While these numbers didn't surprise Fed policymakers, they don't necessarily indicate a steady return to the central bank's inflation target. Similarly, the Consumer Price Index (CPI) accelerated to a 3.5 per cent annual rate in March, with core prices also rising at a steady pace.

Retail sales

Consumer spending in March surpassed expectations, with retail sales increasing by 0.7 per cent. This unexpected growth suggests that households are not significantly pulling back on spending, which aligns with the Fed's perception of a resilient economy.

Overall, these indicators provide insights into the Fed's decision-making process regarding monetary policy, indicating a cautious approach amid evolving economic conditions.

(With Reuters Inputs)