The US Federal Reserve has maintained its benchmark interest rate at its current 22-year high in an effort to moderate price increases that had lately approached near-record highs.
The 5.25%–5.5% rate target is still set by the Federal Reserve.
The bank has been increasing borrowing costs in an attempt to curb inflation, or the pace at which prices increase, and to chill the economy.
It follows recent data that revealed the US economy increased more quickly than anticipated.
A tool that central banks can employ to combat inflation is an increase in interest rates. The idea behind higher interest rates and more expensive borrowing is to discourage consumer spending, which would slow price increases.
Some have criticised the bank, arguing that maintaining higher interest rates would increase the likelihood of a recession in the US economy.
However, from July to September, the economy expanded by a stronger 4.9% than anticipated. The number represented a significant increase over the preceding three months and was supported by higher consumer expenditure and a tight labour market.
The Federal Reserve said in a statement on Wednesday that there was unanimous support for keeping interest rates unchanged and that it was ready to modify its policy “as appropriate” should new risks materialise.
It stated that keeping the rate in place would allow the bank more time to “assess additional information” regarding the state of the economy.
A few months of strong economic statistics, according to its chair Jerome Powell, are “only the beginning of building confidence” that inflation is approaching its target.
The speaker acknowledged that there was still a “long way to go” and expressed understanding of the “hardship” that comes with rising inflation, which reduces consumer buying power.
Although he acknowledged that businesses and communities were being negatively impacted by the Fed’s prior round of rate increases, he insisted that the rate of price increases was still far higher than its aim.
With US inflation now at 3.7%—well beyond the Fed’s target of 2%—it suggests that the central bank may postpone cutting interest rates.
There was “no great surprise” and “no immediate impact on stocks” from the rate hold, according to independent US economic analyst Peter Jankovskis, who spoke to the BBC.
“Elevated long-term bond yields” were another factor that influenced the Fed’s decision, he continued. One of the most important measures of how investors see the health of the US economy is the yield on long-term government bonds.
Additionally, Chairman Powell stated that the central bank needed to consider “significant issues”.
“Global geopolitical tensions are elevated, including Ukraine,” he stated, noting that the Fed was “proceeding carefully” in light of the dangers faced worldwide and was keeping an eye on the Israel-Gaza conflict for its “economic implications.”
“It seems that the Fed sees the economy as strong and is focused on whether additional rate increases might be needed,” Mr. Jankovskis countered. The recurring theme is higher for longer.”
An age of low-cost borrowing has ended in many economies as rising borrowing prices have resulted in more expensive loans for homes, businesses, and other goods and services.
Similar financial strain has been placed on people in the UK due to increased mortgage payments or borrowing expenses.
When the Bank of England makes its next announcement on Thursday, it is generally anticipated that it will maintain the existing interest rate.
After 14 straight increases, the rate was held steady in September.
