The Federal Reserve made a highly anticipated decision on Wednesday, opting to leave interest rates unchanged. This move marks a pause in the central bank’s aggressive efforts to combat inflation, leading to 10 interest rate hikes over the past year.
In addition to maintaining interest rates, the Fed also revised its economic projections. It raised the growth forecast for the gross domestic product (GDP) in the current year from 0.4% to 1%. Furthermore, the Fed increased its estimate for inflation, measured by its preferred metric, to 3.9% from 3.6%. On the other hand, the unemployment rate is predicted to decline to 4.1% compared to the previous estimate of 4.5%.
Explaining its decision, the Federal Reserve stated that keeping the target range steady would allow the committee to assess additional information and its implications for monetary policy. The committee acknowledged the cumulative impact of the tightening of monetary policy, the time lags associated with its effect on economic activity and inflation, and the various economic and financial developments.
Fed no longer expects the US to enter recession in 2023
The Fed now expects 4.1% unemp rate at the end of 2023, down from 4.5%.
Also sees 1.0% GDP up from 0.4%. pic.twitter.com/veVOGSbhzm
— zerohedge (@zerohedge) June 14, 2023
Although the committee hinted at the possibility of future rate hikes, it was not definitive. Estimates among Federal Open Market Committee members varied, with projections ranging from one to four additional rate hikes after this meeting. However, the majority of estimates indicated that two more hikes were likely.
Federal Reserve Chairman Jerome Powell, speaking to reporters after the announcement, emphasized the appropriateness of the pause at this time. However, he also expressed concerns about the risks to inflation, which he believes lean toward the upside.
The decision to leave interest rates unchanged comes in the wake of recent economic data. The Labor Department reported that the consumer price index experienced its slowest increase since 2021 in May, with annual inflation currently running at 4%. Additionally, producer price inflation fell more than expected in May, declining by 0.3%. Despite these developments, inflation remains well above the Federal Reserve’s target of 2%.
Following the announcement, stock markets experienced a decline, with the Dow Jones Industrial Average dropping over 350 points. Although inflation has gradually decreased since peaking at 9.1% a year ago, it remains elevated due to persistent price increases in certain sectors, such as daycare and auto repair, while other sectors have experienced price declines.