The Federal Reserve pauses its interest rate hike campaign as it anticipates a potential monetary tightening

US Federal Reserve Pauses Interest Rate Hikes Despite Elevated Inflation

Federal Reserve Keeps Interest Rates Stable

The Federal Reserve announced on Wednesday that it would pause its campaign of aggressive interest rate hikes despite “elevated” inflation, while suggesting that another sharp increase may be necessary before the year ends. This decision came after the Fed had implemented ten consecutive interest rate hikes since March 2022, keeping its benchmark lending rate between 5.0 percent and 5.25 percent, as stated by the central bank.

Concerns Over Stubborn Inflation Continue

The persistent above-average inflation rates have presented a challenge to the Federal Open Market Committee (FOMC), as annual inflation stubbornly remains above the long-term target of two percent. Additionally, unemployment remains at record lows. However, by keeping interest rates stable, policymakers at the FOMC will have time to evaluate the additional information’s implications for monetary policy.

Further Monetary Tightening Likely for FOMC

Analysts’ expectations were met with the Federal Reserve’s decision. However, the FOMC members hinted that further monetary tightening would likely occur in the future. They announced raising the median projection of the Fed’s benchmark lending rate by an extra half percentage point by the end of this year.

Economic Forecast Update Points to Moderate Expansion

The US economy has indicated signs of slowing down, with the Federal Reserve recently forecasting a mild recession to begin in the future. Despite this, the central bank published an updated economic forecast, raising its 2023 GDP growth projections to 1.0 percent, up from 0.4 percent in March. The reports also state that recent indicators suggest that “economic activity has continued to expand at a moderate pace.”

(With information from AFP)

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