(CNN) — The US Federal Reserve. announced this Wednesday that it will suspend the historic streak of interest rate increases and keep them stable, while waiting for the effects to spread throughout the economy.
The vote to avoid a further rate hike at this meeting was unanimous.
Since March 2022, Fed officials have raised the benchmark interest rate 10 times in a row, in an attempt to cool the US economy and fight inflation, which is still twice the central bank’s target. .
The Fed’s post-meeting statement confirmed that officials view the pause as a prudent move, though most believe additional hikes will be necessary this year, according to the Fed’s latest Summary of Economic Forecasts.
“Holding rates steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the statement said.
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Most officials estimate the federal funds rate will peak at 5.63 to 5.87% in 2023, suggesting there will be at least one more rate hike this year, if not more, according to the size of each increase.
Future policy moves depend on what economic indicators show in the coming weeks and months, including the resilient job market. Payroll growth remains strong, as do wage gains, putting some upward pressure on prices. Leading economists argue that the tight labor market will be a stubborn source of inflation that would need to rebalance to help meet the central bank’s 2% target. Most officials on the Federal Open Market Committee, which sets monetary policy, expect the unemployment rate to rise to a range of 4-4.1% this year.
Officials are also closely watching how credit conditions evolve, considering some lingering strains in the regional banking sector. Banks tightened their credit standards this year and that is expected to continue. That would reduce spending if American consumers have a harder time accessing credit to finance their lifestyles, especially as they have racked up debt in recent months. Americans will soon cut back on their purchases of goods as the shift toward spending on services continues, economists say.
“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” according to the statement. “The extent of these effects remains uncertain.”
Officials expect the personal consumption price index to remain slightly above the central bank’s target of 2% in 2024, but not fully reach 2% until 2025.
News in development…