Business & Economy

Fed holds rates steady, but says more hikes likely before year’s end

Washington, Jun 14 (EFE).- The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, bringing an end to a streak of 10 consecutive increases since March 2022.

But the United States’ central bank, which has been laser-focused on inflation over the past 15 months and remains highly committed to bringing it down to the target level, cautioned that it will likely need to approve new increases in the federal-funds rate prior to year’s end.

That interest rate that banks charge one another for short-term loans is currently at its highest level since mid-2007.

“Looking ahead, nearly all (Federal Open Market) Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time,” Fed Chairman Jerome Powell said at a press conference after the latest two-day meeting of the central bank’s monetary policy-making body.

He said that after 10 consecutive rate hikes the Committee “judged it prudent to hold the target range steady to allow the Committee to assess additional information and its implications for monetary policy.”

The FOMC, which Powell chairs, will next gather on July 25-26 and then will hold three more two-day meetings before the end of 2023 – Sept. 19-20, Oct. 31-Nov. 1 and Dec. 12-13.

That body’s latest decision comes a day after the latest inflation reading reflected the impact of the Fed’s moves over the past year and particularly since June 2022, when the inflation rate rose to a four-decade high of 9.1 percent.

Compared with May 2022, consumer prices last month rose just 4 percent, the lowest increase since March 2021 and a significant drop from the 4.9 percent inflation rate in April.

The decline in consumer prices in May also was the sharpest monthly drop since they began to move lower 11 months ago.

Even so, Powell said at Wednesday’s press conference that “inflation pressures continue to run high and the process of getting inflation back down to 2 percent has a long way to go.”

Also Wednesday, the FOMC released its economic projections for indicators such as gross domestic product growth, the unemployment rate and inflation for this year, next year, 2025 and over the longer run.

Inflation is expected to continue to fall steadily and come in at 3.2 percent at the end of this year and stand at 2.5 percent at the close of 2024 and at 2.1 percent (just above the target level) at the end of 2025. Those projections were virtually unchanged from the March forecast.

The FOMC members are now more bullish about GDP growth this year compared to three months ago; their median projection has the US economy expanding by 1 percent for 2023, up 0.6 percentage points from their March forecast.

The Committee’s growth forecast for 2024 and 2025 was down slightly at 1.1 percent and 1.8 percent, respectively, compared to 1.2 percent and 1.9 percent in March.

With respect to the unemployment rate, the FOMC projects that it will climb from its current level of 3.7 percent to 4.1 percent at year’s end and then come in at 4.5 percent in both 2024 and 2025.

In March, it had projected a 4.5 percent jobless rate at the end of 2023 and a 4.6 percent unemployment rate each of the next two years.

In its latest post-meeting statement, the FOMC said recent indicators suggest that economic activity has continued to expand at a modest pace.

It added that job gains have been “robust” in recent months and that the unemployment rate has stayed low while inflation remains elevated.

High inflation triggered by the pandemic-triggered lockdowns and the war in Ukraine led the Fed to start raising interest rates on March 17, 2022. The first rate hike was just one quarter point, but that was followed by a half-point increase and then four straight three-quarter-point hikes between June and November.

The FOMC’s last in a series of 10 consecutive rate hikes occurred on May 3, when the members voted for a quarter-point increase.

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