The Federal Reserve is putting interest rate hikes on hold — for now

The Federal Reserve is pausing its extended campaign against inflation, keeping its key interest rate steady and giving borrowers a breather after 11 hikes since March 2022.

Central Bank said The Fed will keep the funds rate at 5.25% to 5.5%, the same level it announced at its last meeting in July. Economists had expected the Fed to keep its benchmark rate steady today, according to economists polled by financial data service FactSet.

Although the Fed did not raise rates today, borrowing costs are at their highest level in 22 years, making it more expensive for Americans to take out loans like mortgages and carry credit card debt. The central bank is trying to curb inflation, the highest in four decades by curbing demand for purchases such as homes and cars, showing some signs of improvement as price increases moderate this year.

But it also signaled that the bank may raise rates once more this year, depending on economic conditions, although the central bank wants to keep inflation down without pushing the economy into recession.

“If appropriate, we are prepared to raise rates further,” Fed Chair Jerome Powell told a news conference. He added, “Majority [Fed meeting] Participants believe there is no chance of raising rates one more time in the two remaining meetings this year.”

“Consumers have generally handled their business well as the Fed has continued to raise rates, but we’re seeing signs that they’re starting to struggle more,” said Matt Schulz, credit sector analyst at LendingTree. Payment Notification. “For example, according to the Fed, credit card debt will top $1 trillion for the first time, and delinquency rates will rise to 2.77% in the second quarter of 2023. This is the highest level we’ve seen in more than a decade.”

Future hikes?

In keeping the benchmark rate steady, the central bank said “solid” economic growth and job gains slowed but remained strong. It noted that tight credit conditions could weigh on hiring and inflation, though the magnitude of the impact “remains uncertain.”

“The committee is paying more attention to inflation risks,” it said in its statement.

Aside from predicting another hike by the end of the year, their projections envisioned keeping rates deep through 2024. They expect to cut interest rates twice in 2024, down from the four rate cuts they expected in June.

Asked when the Fed would start cutting rates, Powell said he wouldn’t make a prediction, but said “at some point the time will come, I’m not saying when.” For now, he said, the Federal Reserve is focused on monitoring economic data and making sure that inflation remains below 2% annually.

“The worst thing we can do is fail to restore price stability,” he noted.

Strong economic growth

Policymakers’ willingness to keep rates high for longer suggests they are concerned that inflation may not fall fast enough toward its 2% target. In August, inflation is high A 3.7% annual rate amid higher gasoline prices, while the core numbers, excluding volatile fuel and food costs, rose 4.3% from a year ago.

Powell said the U.S. economy is more resilient than expected, especially under the weight of rising interest rates. He mentioned that the central bank is also observing recent economic developments such as Amalgamated Auto Workers strike and reboot Student loan repayments Next month.

“Broadly, strong economic activity means we have to do more with rates,” he said, adding that low inflation over the past few months allowed the bank to pause tightening this month while assessing the ongoing impact of previous rate hikes.

“The Fed has ruled out some rate cuts next year at its point, so markets are rightly reading a less bleak outlook with rates staying high for longer,” Morgan Stanley analysts said in a research note. “The central bank expects higher growth but lower inflation, and this Goldilocks scenario, if it plays out, could be good for risk assets.”

In its economic forecasts, the central bank predicts that inflation will not reach 2% until 2026.

However, some economists think the central bank could implement another rate hike at its November 1 meeting.

“[W]Unless inflation data weakens on Nov. 1, we believe a rate hike is possible on Nov. 1,” said Joseph R. Cafoglio, president of Mutual of America Capital Management, in an email.

— with a report from The Associated Press.

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