In a highly anticipated decision, the Federal Reserve opted to keep interest rates unchanged on Wednesday, marking a temporary halt to its aggressive efforts to combat inflation, Your Content has learned.
Over the past year, the central bank has raised borrowing costs a total of 10 times.
Alongside this decision, the Fed revised its economic projections, increasing the growth forecast for the country’s gross domestic product (GDP) this year from 0.4% to 1%.
Additionally, the estimate for inflation, measured by the Fed’s preferred metric, was raised to 3.9% from 3.6%. The Fed also expects a decrease in unemployment, forecasting a rate of 4.1% compared to the previous 4.5%.
In its statement, the Fed explained that maintaining the target range at the current meeting allows the committee to evaluate additional information and its implications for monetary policy.
The committee will consider factors such as the cumulative impact of tightening monetary policy, the time lag between monetary policy actions and their effects on economic activity and inflation, as well as economic and financial developments, when determining the appropriate extent of future policy adjustments to restore inflation to the 2% target.
Members of the Federal Open Market Committee provided estimates suggesting the possibility of further rate hikes.
Projections varied among committee members, with expectations ranging from one to four additional rate increases following this meeting.
The majority of estimates indicated the likelihood of two more hikes.
The Fed’s decision comes in the wake of the Labor Department’s report, revealing that the consumer price index experienced its slowest increase since 2021 in May.
Annual inflation currently stands at 4%. Additionally, the government reported a notable decline in producer price inflation, down 0.3% in May, contrary to expectations of a 0.1% decrease.
Input costs have risen by 1.1% on a year-over-year basis.
Bill Adams, the chief economist for Comerica Bank, expressed cautious optimism regarding the inflation report, highlighting the decline primarily due to decreased gasoline and diesel prices. Adams emphasized that producer price inflation, excluding fuel, is cooling down rapidly, which bodes well for the overall economic outlook.
A faster decline in inflation would allow the Fed to ease its monetary policy sooner, stimulating economic growth.
The market had eagerly anticipated the Fed’s decision, resulting in a recovery of stock prices, which had suffered in recent weeks during a bear market that began in June of the previous year.
However, following the announcement, stock prices experienced a slump, with the Dow Jones Industrial Average declining by over 350 points.
Although inflation has gradually receded from its peak of 9.1% a year ago, it remains significantly higher than the Fed’s annual average target of 2%.
Initially, goods prices fell from their pandemic-induced surge, but the costs of services remained persistently high as consumers adjusted their spending habits.
A decrease in wage growth also contributed to inflation mitigation, but certain sectors of the service economy, such as day care and auto repair, continue to exhibit inflationary trends.
Some analysts speculate that if inflation does not decrease further, the Fed may resume raising rates as early as July.
Conversely, others believe that rates may remain elevated for an extended period. A minority of experts even entertain the possibility of a rate cut later this year.
According to a recent survey by ZipRecruiter, the percentage of new hires securing a job in less than a month has risen from 54% in the final quarter of 2022 to 64%.
However, slightly fewer new hires, 65%, experienced increased wages compared to the previous period.
The survey also noted a return to pre-pandemic rates of job switching after the “Great Resignation, according Bloomberg Report.