Interest Rates Hold Steady as Fed Takes “Wait-And-See” Approach

Last week, the Federal Reserve left the primary US interest rate unchanged, waiting to see if its historic series of rate hikes gets inflation under control. The Fed had raised interest rates at a torrid pace in the last 18 months, as it increased its benchmark rate at 11 consecutive meetings from March last year until its meeting in July.

Citing an easing of economic conditions while acknowledging that inflation is still higher than its two percent target, the Federal Open Market Committee left the benchmark interest rate unchanged at 5-1/4 to 5-1/2 percent — the highest since 2008.

And Americans are feeling the pinch, as new 30-year fixed-rate mortgages today carry rates around 7 percent, up from 3 percent two years ago.

The Fed’s policymakers also signaled another rate increase later this year and envision their key rate staying higher in 2024 than most analysts had expected.

According to the FOMC statement:

 

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Read the complete FOMC statement for more information.