Tuesday, September 26, 2023

The Fed appears inclined to leave interest rates unchanged


Since the Federal Reserve’s last meeting in July, the economy has moved in the direction its officials wanted: Inflation has eased – although not as much as many Americans would like – economic growth is on track and the job market is cooling off.

When they meet again this week, officials will most likely decide they can wait and see if the trend continues. Therefore, it is almost certain that they will not change the reference interest rate until the end of the meeting on Wednesday.

The decline in inflation suggests that the US Federal Reserve is nearing the peak of its series of interest rate hikes in March last year. The institute has raised interest rates at the fastest rate in four decades, making loans more expensive for companies and individuals.

The question for investors and analysts is what comes next. Some clues could be provided in the interest rate forecasts that the bank publishes quarterly and in a press conference with the institution’s president, Jerome Powell.

Another rate hike this year likely remains on the table as the Fed forecasts fewer rate cuts next year than it forecast in June. This will underline the bank’s commitment to keeping interest rates high well into next year to bring inflation back to its 2% target.

The persistence of inflation pressures was highlighted in two government reports released last week, adding some uncertainty to forecasts. Claudia Sahm, a former economist at the bank, said she believes a “soft landing” – in which inflation is tamed without triggering a recession – is still possible. At the same time, however, he warned that inflation could remain higher than the bank’s estimates. Or, he suggested, the cumulative effect of the 11 rate hikes could push the economy into recession.

“We have reached a point where the situation could develop in several directions,” noted Sahm. Federal Reserve officials “will respond as circumstances warrant.”

Nation World News Desk
Nation World News Deskhttps://nationworldnews.com/
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