The Fed kept interest rates steady and pledged to proceed cautiously.

The Fed kept interest rates steady and pledged to proceed cautiously.


The Federal Reserve left interest rates unchanged on Wednesday, keeping the outlook for future hikes intact, taking a cautious stance as inflation eases rapidly, but is not done with it yet.

Rates have remained in the 5.25 to 5.5 percent range since July, having recently hovered above near zero through March 2022. Policymakers believe borrowing costs are high enough to achieve their goal of curbing economic growth if they are kept at this level for much longer.

By cooling demand, the Fed is hoping to induce companies to raise prices less rapidly. While the economy has held up so far – growth was unusually strong over the summer – inflation is expected to moderate from 2022 onwards. Overall price growth slowed to 3.4 percent by September, down from more than 7 percent at its peak.

Fed policymakers are now trying to get inflation back to 2 percent. The combination of economic flexibility and soft inflation has given officials hope that they may be able to slow growth gradually and relatively painlessly, in a rare “soft landing.” At the same time, the surprising resilience of the economy is forcing the Fed to question whether it has done enough to curb demand and price growth.

The key question facing Fed officials is whether they will need to make a final rate increase in the coming months, a possibility they left open on Wednesday.

“The full impact of our tightening has not yet been felt,” Fed Chairman Jerome H. Powell said at a news conference after the decision. “Given how far we have come, as well as the uncertainties and risks we face, the committee is proceeding with caution.”

Mr. Powell said officials will make decisions about the likelihood and extent of additional policymaking — and how long they will need to keep rates high — based on economic data and various risks to the outlook.

Stock prices in the S&P 500 index rose as Mr. Powell spoke and the prospect of further rate hikes diminished, suggesting that investors took his comments as a sign that interest rates were probably peaking. But KPMG chief economist Diane Swonk said she thinks markets are getting ahead of themselves.

“They’re not declaring victory,” he said, explaining that while he didn’t expect the Fed to change rates in December, a move as early as 2024 seemed possible. “They’re hesitant to say, ‘We’re done.'”

Other analysts suggested that by not emphasizing the market’s expectation that the Fed raise interest rates, Mr. Powell was essentially endorsing that view, barring an unexpected surprise.

At the Fed’s last meeting, in September, policymakers estimated that another quarter-point increase in rates would probably be appropriate before the end of 2023. But officials did not release updated economic projections on Wednesday — they are scheduled to do so, according to the Fed. December 12-13 meeting – and conditions have changed since their last assessment.

This is because long-term interest rates have gone higher in the markets. While the Fed sets short-term borrowing costs, longer-term rates adjust more late and for a variety of reasons.

The recent surge has made everything from mortgages to business loans more expensive, which could help cool the economy. This change will make it less necessary for Fed officials to raise rates further.

“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation,” the Fed said. said in his statement Wednesday, Nav pointed to financial conditions as a cap on growth.

“This is their way of saying that higher interest rates matter,” said Gennady Goldberg, rates strategist at TD Securities. “Interest rates are doing some of the Fed’s work for them.”

Mr Powell explained that the Fed is closely monitoring high market interest rates – particularly to see whether the surge is sustained, and to what extent it has affected consumers and businesses.

But Mr. Powell said the Fed’s staff economists were not predicting an imminent recession, suggesting he did not think higher borrowing costs would hurt the economy too much.

And he said policymakers are still focused on whether interest rates are high enough to ensure that inflation will fully cool down, given recent evidence of continued economic strength.

“We are not yet confident that we have achieved that position,” Mr. Powell said.

While the Fed’s actions have halted parts of the economy, including sales of existing homes, the labor market continues to boom. appointment is still pending Quick Compared to before the pandemic. Wage growth has slowed, but is also faster than before 2020.

As Americans win jobs and wages rise, they have continued to open their wallets. Spending grew faster in September than economists expected, and the overall growth rate has been faster than most forecasters would have expected a year and a half into the Fed’s campaign to cool it.

If this strength continues, it could become a problem for central bankers. If consumers remain hungry for goods and services, companies may continue to raise prices, making it more difficult to eliminate what remains of rapid inflation.

At the same time, Fed officials don’t want to tighten the brakes too much, which could lead to an unnecessary recession. Policy changes are often delayed and the cumulative effect of interest rate increases may take several months to fully dissipate.

Mr. Powell said, “Everyone has been very pleased to see that we have been able to achieve quite significant progress on inflation without seeing the kind of rise in unemployment that is so common with rising interest rates.” “The same is true of evolution.”

But he also made clear that the Fed still thinks a slowdown in the job market and overall growth is likely to prove necessary. He said improvements in supply chains and fresh supplies of workers have so far helped bring the economy back into balance, but these forces may not be enough to bring inflation completely back to normal.

“What we do with demand will still be important,” he said, later adding that “the slower pace is giving us, I think, a better sense of if we need to do more.” “How much more do we need to do?”



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