Fed Rates Unchanged, Possibility of Reduction Seen for Later in the Year

Interest rates will remain exactly where they are for now, the Federal Reserve has just announced, putting an end to speculation that the rates may be on the verge of an immediate downward slope.

In a press release, the Fed noted that both general economic activity and employment have remained strong in the spring and early summer, while “inflation has eased over the past year, but remains elevated.”

For the last year, the Fed’s fund rate, which is the rate at which banks borrow and lend to one another, has remained in the range of anywhere from 5.2% to 5.5%. That steady rate contrasts dramatically with the historic increase recorded from March of 2022 to last September, when the rate went from well under 1% to 5.3%.

Despite this most recent unchanged rate, Federal Reserve officials have signaled that they may well reduce borrowing costs sometime in the next half year. This is a sign, said the New York Times, “that they plan to be patient before turning a corner in their fight against rapid inflation.”

The Federal Open Market Committee, in its statement, said that for now “the economic outlook is uncertain,” adding that committee members remain highly concerned about inflation risks.

In issuing a policy change in the months to come, the Committee said it will “take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

The collective forecast, thinks the publication Barron’s, “implies only a one quarter-point cut at the end of this year,” which nevertheless would be a “significant shift from earlier this year.”

Such predictions comport with an economists’ poll conducted in late May by the Financial Times in which half of the 39 responding academics said they thought the Fed would make only a one quarter point cut before the end of the year.

“Fed officials believe the continued strength of the jobs market gives them leeway to keep rates at a 23-year high of 5.2 to 5.5%,” said the publication, noting at the same time that central banks in both Canada and Europe have recently reduced rates.

By Garry Boulard

Image Credit: Courtesy of Pixabay

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