The Federal Reserve’s Federal Open Market Committee (FOMC) has announced that it will maintain the current interest rates at their elevated level of 5.5 percent. This decision marks a continuation of the pause in rate hikes that was initiated in previous Fed meetings, maintaining rates at their highest point in 22 years.
The key factor behind this decision is the persistent concern over elevated inflation levels, which remain well above the targeted rate of two percent. The FOMC’s monetary policy is primarily guided by its commitment to controlling inflation while promoting economic growth.
WHAT TO KNOW ABOUT THE FED’S RATE DECISION
The Fed says interest rates will stay at current high levels: 5.25%-5.50%
Is Jerome making the right move? pic.twitter.com/R2pt96WnMo
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The FOMC’s decision takes into account recent economic indicators that point to robust economic activity during the third quarter. Despite a moderation in job gains compared to earlier in the year, the labor market remains strong, with a low unemployment rate. These positive indicators provide a foundation for the decision to maintain the current rates.
The committee also recognizes the sound and resilient state of the U.S. banking system. However, it is cognizant of the impact of tighter financial and credit conditions on households and businesses, which may weigh on economic activity and hiring. The extent of these effects remains uncertain, necessitating the committee’s continued vigilance in assessing inflation risks.
The FOMC reaffirms its commitment to achieving maximum employment and stabilizing inflation at a two percent target over the long term. As a result, the committee has chosen to keep the federal funds rate within the range of 5-1/4 to 5-1/2 percent.
The FOMC’s approach to monetary policy is based on a careful assessment of various factors, including the cumulative tightening of monetary policy, the time lag between monetary policy actions and their impact on the economy, and economic and financial developments. Additionally, the committee is actively reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as part of its previously announced plans.
The committee remains committed to its objective of returning inflation to the two percent target and will continue to monitor incoming economic information, labor market conditions, inflation pressures, inflation expectations, and international developments.
The decision to maintain interest rates at their current level reflects the Federal Reserve’s commitment to a balanced approach, focusing on controlling inflation while ensuring economic growth and stability in the United States.
If the Fed has indeed paused interest rate hikes, why are equities not behaving similarly to typical pause-patterns? Find our take on the new Fed reaction function and why it is NOT positive for risk assets ⬇️
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