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WASHINGTON: The US Federal Reserve voted on Wednesday (Sep 20) to hold interest rates at a 22-year high while predicting that lending rates will need to remain higher for longer to definitively cool inflation.
“We are prepared to raise rates further, if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving sustainably toward our objective,” Fed Chair Jerome Powell said in a press conference after the decision.
After 11 interest rate increases since March last year, inflation has fallen sharply but remains stuck stubbornly above the Fed’s long-run target of two per cent per year – keeping pressure on officials to consider further policy action.
The Fed’s decision to keep its key lending rate between 5.25 and 5.50 per cent gives policymakers more time to assess the health of the US economy amid signs of robust economic growth and a strong labour market.
The move, which was in line with expectations, postpones additional pain for millions of Americans already struggling with the impact of the Fed’s existing hikes on mortgages and other loans.
“We are highly attentive to the risks that high inflation poses to both sides of our mandate,” Powell said, referring to the Fed’s twin mandate to tackle both inflation and unemployment.
REVISION TO GROWTH
On Wednesday, the Fed said economic activity had been expanding at a solid pace, while noting strong job gains and a low unemployment rate.
The recent string of positive economic data has raised hopes that the Fed can slow price increases without triggering a damaging recession.
Through updated economic forecasts, the rate-setting Federal Open Market Committee (FOMC) indicated it believes the economy will fare far better than previously hoped, with knock-on effects for Fed policy.
FOMC members left the median projection for interest rates at the end of this year between 5.50 and 5.75 per cent, keeping alive the possibility of another quarter percentage point hike before the end of the year to tackle inflation.
At the same time, they raised their forecast for where interest rates will be next year by half a percentage point – a significant increase that indicates a slower pace of rate cuts than previously anticipated.
“The overall message is unambiguously hawkish,” Citi economists wrote in a note to clients after the Fed decision was published.
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