The Federal Reserve has made a long-awaited choice on Wednesday, deciding to keep interest rates steady. This action indicates a halt in the central bank’s strong efforts to address inflation, resulting in 10 interest rate increases over the previous year.
Aside from preserving interest rates, the Fed has also adjusted its economic forecasts. It elevated the growth prediction for the gross domestic product (GDP) this year from 0.4% to 1%. Moreover, the Fed boosted its measurement for inflation, as gauged by its favored metric, to 3.9% from 3.6%. On the contrary, the forecast for the unemployment rate dropping to 4.1% is now projected, a decrease from the previous 4.5% estimate.
In rationalizing its choice, the Federal Reserve cited that maintaining the target range would enable the committee to evaluate more information and its consequences for monetary policy. The committee recognized the cumulative effect of the tightening of monetary policy, the delays connected to its impact on economic activity and inflation, as well as the several economic and financial advancements.
The Fed doesn’t foresee a recession in the US for 2023
The Fed now anticipates an unemployment rate of 4.1% by the conclusion of 2023, down from 4.5%.
It also foresees a 1.0% increase in GDP, up from 0.4%. pic.twitter.com/veVOGSbhzm
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Although the committee alluded to potential future rate increases, it wasn’t definitive. Forecasts among members of the Federal Open Market Committee varied, with projections spanning from one to four extra rate hikes following this gathering. Nonetheless, the majority of estimates implied that two more hikes were probable.
Jerome Powell, the Chairman of the Federal Reserve, when speaking to journalists post the announcement, stressed the suitability of the pause at this juncture. Nonetheless, he also communicated concerns about the inflation risks, which he believes are leaning towards the upside.
The resolution to keep interest rates stable comes in light of recent economic data. The Labor Department disclosed that the consumer price index saw its slowest rise since 2021 in May, with annual inflation currently standing at 4%. Moreover, in May, producer price inflation declined more than anticipated, dropping by 0.3%. Despite these developments, inflation remains considerably above the Federal Reserve’s objective of 2%.
Subsequent to the announcement, stock markets observed a descent, with the Dow Jones Industrial Average plummeting over 350 points. Although inflation has been gradually diminishing since reaching a peak of 9.1% a year ago, it continues to stay elevated due to continued price escalations in certain sectors like daycare and auto repair, while some other sectors have faced price reductions.
