Fed Leaves Interest Rates Unchanged But Forecasts Further Increases
Following ten consecutive interest rate hikes, the Federal Reserve on Wednesday announced its widely expected decision to pause its rate increases.
The Fed said it has decided to maintain the target range for the federal funds rate at 5 to 5.25 percent, marking the first time the central bank has left rates unchanged since January 2022.
Leaving rates unchanged will allow the Federal Open Market Committee the opportunity to assess additional information and its implications for monetary policy, the Fed said.
The Fed noted future interest rate decisions will 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.
However, the central bank’s latest projections suggest the Fed plans to resume raising rates later this year, forecasting a rate of 5.6 percent by the end of 2023.
If the Fed decided to revert to its recent quarter-point increases, the forecast suggests the central bank will raise rates two more times this year.
Back in March, the Fed has predicted interest rates would be at 5.1 percent at the end of the year, in line with the current 5 to 5.25 percent range.
The forecast for additional rate hikes this year comes as the Fed raised its forecast for annual core consumer price growth to 3.9 percent from 3.6 percent.
The Fed also raised its forecast for GDP growth in 2023 to 1.0 percent from 0.4 percent and lowered its forecast for the unemployment rate to 4.1 percent from 4.5 percent.
In its statement, the Fed said economic activity has continued to expand at a modest pace while noting job gains have been robust in recent months and the unemployment rate has remained low.
The central bank also noted inflation remains elevated and reiterated its strong commitment to returning inflation to its 2 percent objective.
“The Fed today left rates unchanged, but signaled a clear intention to continue hiking rates in 2023 and keeping rates high in 2024,” said Chris Low, Chief Economist at FHN Financial.
He added, “As much as inflation is moving in the right direction, it is moving slowly, and the Fed remains frustrated with its inability to move the needle on the unemployment rate.”
The Fed’s next monetary policy meeting is scheduled for July 25-26, with CME Group’s FedWatch Tool currently indicating a 69.6 percent chance of a 25 basis point increase.
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