Federal Reserve holds interest rates steady amidst inflation focus

The US Federal Reserve votes to keep interest rates unchanged for the fourth time in a row, indicating a conservative stance on near-term cuts.

 the US Federal Reserve voted to leave interest rates unchanged at the current level on Wednesday for the fourth time in a row, an indication of a rather conservative stance in regard to staged cuts in the near term.

In recent meetings, the central bank, which has been mandated to ensure that both inflation and unemployment rates are at a minimum, has been keen on controlling inflation to achieve its long-term target of two percent.

Consequently, a statement from the Federal Reserve revealed that the benchmark lending rate would remain the same at its 23-year peak, which ranges between 5.25 and 5.50 percent. The Fed also noted that the risks of meeting the employment and inflation objectives used to be skewed in one direction, but now they are shifting to a better balance.

Contrastingly, the Federal Open Market Committee (FOMC) highlighted that interest rate cuts would not be taken into consideration until a higher degree of assurance is made that inflation is steadily proceeding towards the two percent goal. Following the decision, Fed Chair Jerome Powell noted during a press conference that they see the policy rate as probably at its peak for this round of tightening.

Powell observed that a majority of FOMC members favor a rate cut in 2024, but an adjustment at the upcoming March meeting is considered unlikely. He said “We are not convinced the Committee will cut rates as soon as its next meeting on March 20 because it needs ‘greater confidence’ that inflation is moving back toward 2 percent on a sustained basis,” Wells Fargo economists wrote in a note to clients after Powell’s remarks.

After the statement, Wall Street faced a devastating loss of stocks, and the traders adapted to the news.

The desire to put an end to post-pandemic inflation also increased the Federal Reserve’s interest rate hikes and showed progress. The core inflation, that is, the preferred measure of inflation, dropping the volatile food and energy prices, has fallen under the 3.0 percent per annum rate. On the other hand, the US economy grew steadily at 2.5 percent in 2023 while ending the year with an unemployment rate that remained close to record lows.

Source: AFP