Sunday, December 10, 2023

The US FED left interest rates unchanged

The US Federal Reserve held interest rates steady on Wednesday but left the door open to further increases in borrowing costs in a policy statement that acknowledged the surprising strength of the US economy but also noted the tighter financial conditions facing businesses and households.

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“Economic activity expanded at a strong pace in the third quarter,” the US central bank said in a policy statement after a two-day meeting in which officials unanimously agreed to leave the benchmark rate at interest for a day in the 5.25%–5.50% range, where it has been since July.

The language marked an improvement in the “solid pace” of the activity that the Federal Reserve observed at its meeting in September and followed recent data showing that US gross domestic product grew at an annual rate of 4.9% in the third quarter.

Although the markets believe that the Federal Reserve may have finished raising the official interest rate, with financial conditions tightening themselves through higher market-based interest rates, data pointing to a stronger-than-expected economy and labor market maintained hope for another interest rate hike.

The Federal Reserve’s latest statement said that with employment growth “firm” and inflation still “elevated,” the central bank continues to consider “the scope for further tightening, which may be appropriate to return inflation to 2% over time.

FED Chairman Jerome Powell’s words may have special importance for investors trying to predict whether the Federal Reserve plans to raise rates again, as most of its officials have indicated in a round of economic projects in September.

The policy statement itself has become more robust as officials are less certain about their next move, balancing a slow but steady decline in inflation with a sense that the economy is likely to slow in the coming months and the anxiety of having too much. pressure at an increasing rate may cause it to slow down more than necessary.

The statement said that the Federal Reserve is still watching the impact of previous rate hikes while considering further steps to understand the “lags in which monetary policy affects economic activity, inflation, and economic and financial developments.”

The phrase is used to indicate a degree of patience in deciding on further rate increases and an acknowledgment that the full impact of the 5.25 percentage point rate increase since March 2022 has not yet been felt. Adding to the potential pressure is an increase in market-based interest rates that could further slow economic growth.

The statement referred to the possible impact, adding a reference to tighter financial conditions as one of the factors “likely to weigh on economic activity,” with effects still uncertain

World Nation News Desk
World Nation News Desk
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