As predicted by financial observers, the US Federal Reserve (Fed), after the two-day meeting held on September 19 and 20, decided to keep interest rates unchanged at 5.5%. This is the first time since March 2022 that the Fed decided not to raise interest rates.
To deal with inflation in the US, the Fed raised interest rates from 0.25% to 5.5% in just 1 and a half years. Current interest rates are on par with the period after the financial crisis of 2008 but with a much faster adjustment speed.
The Federal Open Market Committee (FOMC) said:
“Recent indicators suggest that economic activity has been expanding at a solid pace. The labor market has slowed in recent months but remains strong and the unemployment rate has remained low.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain.”
Fed Chairman Jerome Powell said the Fed has taken drastic action since starting to raise interest rates in March 2022, however, it is still uncertain about the effectiveness of the adjustments over the past year and a half. The Fed will continue to control inflation to make appropriate policy adjustments.
Jerome Powell said the Fed is ready to raise rates further if appropriate and intend to hold policy at a restrictive level until they are confident that inflation is moving sustainably down toward.
Many economic observers believe that the Fed will maintain interest rates in the range of 5.25 – 5.5% from now until the end of 2023. Then, they will have next meetings in November and December to set new directions for 2024, thereby reducing interest rates to a more reasonable level. Some even predict that the Fed will have interest rate cuts of up to 0.75% in 2024.
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