Federal Reserve maintains the key rate at the same level
It seems that manipulating the rate isn't working anymore
The US Federal Reserve has decided to maintain its current interest rate, a decision consistent with the previous month. Fed President Jerome Powell acknowledges persistent concerns about high inflation but emphasizes the need to assess the impact of the earlier interest rate increases.
Last year, the Federal Reserve began a series of interest rate hikes, coinciding with the outbreak of the conflict in Ukraine, aimed at curbing inflation. By raising borrowing costs, central banks aim to reduce demand in the economy, with the expectation that this will help control rising prices. As a result, the current US interest rate falls in the range of 5.25 to 5.50 percent, the highest level since 2001.
Federal Reserve policymakers anticipate that the cumulative effect of last year’s interest rate hikes will exert pressure on both the economy and the labor market. This pressure is attributed not only to restricted borrowing opportunities but also to a tighter financial situation for businesses and households. However, the extent of the impact of these interest rate hikes remains uncertain.
Thus far, the higher interest rates do not seem to have adversely affected the US economy. For instance, in the third quarter, the Gross Domestic Product (GDP) demonstrated a significant increase compared to the previous three months, primarily due to increased consumer spending. Recent data from the US Department of Labor’s statistics office also indicates a tight labor market, as job vacancies remain unfilled.
The Federal Reserve has maintained interest rates unchanged on three occasions this year. Following the previous interest rate decision in September, the majority of policymakers hinted at the likelihood of at least one interest rate increase in 2023. The robust growth of the US economy is an additional argument for such a move. However, Powell also noted that inflation was approaching the Fed’s target of 2 percent, suggesting that a more cautious approach may be taken when raising borrowing costs.