BUSINESS

Fed Pauses Interest Rate Hikes After 15 Months Of Tightening

The Federal Reserve kept its key interest rate unchanged on Wednesday, ending a long streak of increases that began in March 2022 to combat high inflation.

The Fed’s benchmark rate remains at a range of 5% to 5.25%, the highest level since 2007.

The central bank has raised its rate 10 times in the past 15 months, in the fastest series of rate hikes since the 1980s. 

The agency said it decided to hold its policy rate steady at this meeting to assess additional information and its implications for monetary policy.

It also signaled that it might raise rates again later this year, depending on the economic and inflation outlook.

“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Fed Chair Jerome Powell said at a news conference.

The agency’s new economic projections show that officials expect to raise rates by another half percentage point by the end of 2023, bringing the rate to a range of 5.5% to 5.75% 

That’s higher than what financial markets and many economists had anticipated.

The Fed’s decision to pause comes as inflation has moderated slightly in recent months, thanks to lower gas prices and slower food inflation.

The Fed’s preferred measure of annual inflation fell from 4.4% in April to 4% in May, the lowest level in more than two years.

However, core inflation, which excludes volatile food and energy costs, remained high at 5.3%, far above the Fed’s 2% target.

Moreover, the agency said it expects inflation to decline further over time, but acknowledged that inflation risks remain elevated.

It also said it expects the economy to grow by 3.8% this year, up from its previous forecast of 3.4%. 

The Fed’s pause is likely to provide some relief to consumers and businesses who have faced higher borrowing costs as a result of the Fed’s rate hikes. The Fed’s rate affects interest rates for mortgages, auto loans, credit cards and other loans.

However, the Fed’s pause may also disappoint savers who have benefited from higher bank savings yields after years of near-zero rates. The Fed’s rate also influences the returns on money market funds and certificates of deposit.

The next policy meeting is scheduled for July 25-26, when it will decide whether to resume its rate hikes or extend its pause.

The Fed said it will determine the extent of additional policy firming that may be appropriate based on various factors, including the lags with which its rate hikes affect the economy, inflation, and financial developments. 

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Readers Bureau, Contributor

 Edited by Jesus Chan

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