Reference Image
The Federal Reserve has decided to maintain its key interest rate without any changes, despite raising it consistently in previous months to address inflation concerns. However, in an unexpected development, the Fed has indicated the possibility of two additional rate hikes later this year, potentially starting as early as next month.
By keeping the benchmark rate at approximately 5.1 percent, the highest level in 16 years, the Fed suggests that its efforts to increase borrowing rates have made some headway in curbing inflation. Nevertheless, policymakers within the Fed believe it is necessary to evaluate the impact of previous rate hikes on both inflation and the overall economy before proceeding further.
The central bank has decided to keep the target interest rate unchanged at its latest meeting in order to gather more information and evaluate its impact on the Federal Reserve’s policies. Economic forecasts released by the central bank indicate that its 18 policymakers expect to raise the key rate by an additional 0.5% this year, reaching approximately 5.6%.
Also Read: Adani Group Seeks to Rebuild Investors Confidence through Refinancing Up to $3.8 Bn
The economic forecasts unveiled by the Federal Reserve showcased a more hawkish stance than anticipated by analysts. Two additional quarter-point hikes in the Fed’s rate are predicted by twelve policymakers out of 18, while four were in favor of a quarter-point increase. Only two officials envisioned maintaining the rates at their current levels.
The Federal Reserve has pursued a series of forceful interest rate increases aimed at curbing spending and addressing the most severe inflationary period in forty years. Consequently, the cost of mortgages, auto loans, credit cards, and business borrowing has risen. Mortgage rates have experienced a significant surge, while average credit card rates have reached a record high, surpassing 20 percent.
As the central bank increased interest rates, consumer inflation has consistently decreased from its peak of 9.1 percent in June to 4 percent in May. However, when excluding the volatile costs of food and energy, core inflation, which is a measure of underlying price trends, remains persistently high. In May, core inflation stood at 5.3 percent compared to the same period the previous year, significantly surpassing the Fed’s target of 2 percent.
