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Sunday June 16, 2024

US Fed keeps interest rates at 22-year high in attempt to curb inflation

The decision was widely expected, given the Fed's stated goal of slowing inflation to its long-term target of two percent

By Web Desk
November 02, 2023
Security personnel walk past the US Federal Reserve building in Washington, DC on Oct 22, 2021.— AFP
Security personnel walk past the US Federal Reserve building in Washington, DC on Oct 22, 2021.— AFP

In an effort to curb persistent inflation without weakening the robust economy, the US Federal Reserve decided on Wednesday to keep interest rates at a 22-year high for the second consecutive meeting.

The Fed's decision to keep its benchmark lending rate between 5.25% and 5.50% gives policymakers time to "assess additional information and its implications for monetary policy," the central bank said in a statement.

The decision was widely expected, given the Fed's stated goal of slowing inflation to its long-term target of two percent.

It marks the first time officials have held rates steady at two consecutive meetings since they began tightening monetary policy last year.

The US central bank said any future decisions on policy firming would "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

Since peaking at more than seven percent in June last year, inflation as measured by the Fed's favoured yardstick, has slowed by more than half — although it remains stuck firmly above three percent.

When the Fed hikes interest rates it raises the cost of borrowing from the bank, which is supposed to dampen economic activity and weaken the labor market.

But despite its aggressive monetary tightening, the Fed noted that "economic activity expanded at a strong pace in the third quarter."

Job gains remain strong, and the unemployment rate has remained low, it added.

The Fed's move is likely to raise expectations that it is done hiking interest rates and is moving into a prolonged pause.