U.S. Federal Reserve (Fed) officials on Wednesday kept rates unchanged after raising rates for the 10th straight time, even though officials expected a hike would be necessary this year. .
Fed officials said policy statementsaid it has given time to assess how the economy is responding to rapid efforts to slow demand and bring rapid inflation back under control. The central bank has raised interest rates to a range of 5% to 5.25% in just over a year.
But officials predicted that the rate could be raised further, to 5.6% by the end of 2023, based on new economic forecasts. That suggests policymakers expect two more rate hikes, with Fed officials still worried about inflation and taking further steps to curb growth and curb inflation. It clearly indicates that it thinks there may be a need.
The Fed said keeping rates on hold “allows the committee to assess additional information and implications for monetary policy.” Post-meeting statement.
“We’ve covered quite a bit, but the full effect of the tightening has not yet been felt,” Fed Chairman Jerome H. Powell said at a press conference after the announcement.
Fed officials are trying to keep inflation rising at a pace of 2% a year, which is far higher than it has been since early 2021. As a result, central bankers are rapidly raising interest rates, driving up the prices of home and business loans. In an effort to cool the economy, consumers are discouraged and businesses are forced to stop raising prices sharply.
But 15 months into the effort to keep inflation down, Fed officials have given them more time to assess how their policies are affecting the economy. We want to be thinking. Central bankers unanimously voted to keep interest rates on hold.
Just because Fed officials are moving into a new, more patient phase in their fight against rapid inflation doesn’t mean they’re abandoning their efforts to contain inflation. Central bank authorities have already raised interest rates significantly to about 5.1%, and the change is still creeping in and weighing on the economy. And the prospect of more rate hikes later this year could reinforce to both investors and the public that officials aren’t necessarily finished adjusting policy.
In the latest economic forecasts released on Wednesday for the first time since March, central bankers said inflation could end 2023 at 3.2%, or 3.9 after deducting food and fuel prices. He said it could be 10%. The forecast for so-called core measures is significantly higher than the 3.6% that officials expected in March, underscoring increasing fears that inflation could turn out to be very stubborn. bottom.
Policy makers want to slow the economy just enough to ensure inflation returns to target.
If authorities fail to raise rates sufficiently to keep inflation under control in a timely manner, consumers and businesses may expect steady price increases and adjust their behavior accordingly. Workers will demand bigger annual wage increases, and businesses could push prices up more regularly. And in general, it could be harder to keep inflation under control.
But central bankers also want to avoid sharply slowing the economy unnecessarily by raising rates too much. That would put Americans out of work and undermine the financial security of families across the economy.
This delicate task has been further complicated by conflicting economic data in recent months. Despite softening manufacturing data and a recent rise in unemployment claims, employment is holding up and the housing market is showing signs of stabilizing despite significantly higher interest rates. .
“Given the distance and speed so far, we decided it was wise to keep the target range constant,” Powell said. He said officials will consider historical developments and economic conditions when deciding whether to raise rates again and by how much.
“We remain committed to returning inflation to our 2% target,” he said.