The Impact of US Federal Reserve's Decision to Keep Interest Rates Unchanged
Key Highlights :
The US Federal Reserve on Wednesday decided to keep the interest rate unchanged, even as they continue with their hawkish stance. Federal Reserve Chair Jerome Powell indicated that the central bank is nearing the end of its interest rate hikes cycle, while his fellow policymakers conveyed a more impactful message that interest rates should stay elevated for a longer period due to the renewed strength in the economy.
The decision to keep the interest rate unchanged has had a significant impact on the US economy. The US central bank raised the target range for the US federal funds rate from near-zero levels in March 2022 to 5.25 per cent-5.5 per cent range in July, marking a 22-year high. Since then the Fed has kept the rate unchanged during the last two Federal Open Market Committee (FOMC) meetings.
Data have shown that the US economy has so far been resilient against the monetary tightening. Consumer spending continues to be robust, and the job market has remained stable, although there are signs of a slowdown in job growth. The unemployment rate is holding steady at 3.8 per cent for this year and is projected to only rise to 4.1 per cent by the end of the year, as per Reuters report.
The FOMC statement said, "Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated...Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks."
It further said that the policy committee will continue to assess additional information and extend additional policy firming that may be appropriate to return inflation to 2 per cent over time.
Jerome Powell in his statement said, "We have covered a lot of ground, and the full effects of our tightening have yet to be felt." "We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective."
In the post-monetary press brief, Powell told reporters that stronger activity means we have to do more with rates, and that’s what that meeting is telling you. As per CNBC, he said that projected rate cuts in 2024 have more to do with Fed officials’ optimism about economic growth than a growing concern about stubborn inflation.
The decision to keep the interest rate unchanged has had a positive impact on the US economy. The move has provided much-needed relief to businesses and households, as interest rates remain low, which in turn has enabled them to access credit more easily.
Moreover, the decision has also helped to keep inflation in check. The Fed’s hawkish stance has enabled it to maintain a tight monetary policy, which has helped to keep inflation under control. This has also enabled the US economy to remain resilient against economic shocks.
Finally, the decision has also helped to maintain stability in the job market. The unemployment rate has remained low, which has enabled businesses to continue to hire workers and expand their operations. This has in turn helped to create more jobs and improve the overall economic outlook.
Overall, the US Federal Reserve’s decision to keep the interest rate unchanged has had a positive impact on the US economy. The move has provided much-needed relief to businesses and households, while also helping to keep inflation in check and maintain stability in the job market.
