Fed Delays Interest Rate Hikes until Later This Year

Fed Delays Interest Rate Hikes until Later This Year

The American Federal Reserve announced that after 15 months, it would pause a series of interest rate increases. The Fed will wait for the interest rate hikes to date to show their full effect on the economy.

Since March 2022, Fed officials have raised the central bank’s benchmark interest rate 10 times in a row to cool the US economy and rein in inflation, which is still running at twice the two percent target.

As stated in the announcement of the Fed’s Federal Open Market Committee (FOMC), the central bank’s reference interest rate will remain in the range of five to 5.25 percent.

The Fed kept interest rates at their current level. Still, new economic projections indicate that borrowing costs will rise by another half a percent by the end of this year.

The US central bank announced that to balance the risks to the economy with the still unresolved fight to control inflation. The Fed decided to maintain the current range of interest rates and assess additional information and its implications for monetary policy.

All 11 FOMC members present voted for the decision. According to Fed officials’ projections, inflation will slow down to 3.2 and 2.5 percent this year and 2.5 percent, respectively. In comparison, base inflation will be slightly higher (3.9 percent in 2023 and 2.6 percent in the following year).

Economic growth measured by the increase in the gross domestic product will amount to a modest one percent this year, while in 2024, it will accelerate to 1.1 percent, central bankers predict.

Tightening Money Policy

Further rate increases would consider the cumulative tightening of monetary policy, lags with which monetary policy affects economic activity and inflation, as well as economic and financial trends, as stated in the explanation of the Fed’s decision.

According to new projections, the reference interest rate should rise from 5.00-5.25 percent to 5.50-5.75 percent by the end of the year.

According to the so-called “dot plot,” i.e., the table showing bankers’ expectations regarding future rates, interest rate reductions can only be expected in 2024.