After increasing it ten times in a row to battle excessive inflation, the Federal Reserve left its benchmark interest rate steady on Wednesday.
However, the Fed unexpectedly hinted that it would hike rates twice more this year, perhaps as early as next month.
The Fed’s decision to maintain its benchmark rate at 5.1%, the highest level in 16 years, indicates that it thinks the much higher borrowing rates it has induced have contributed to some success in containing inflation.
Top Fed officials, meanwhile, want additional time to thoroughly evaluate the impact of their rate rises on inflation and the economy.
“Holding the target rate steady at this meeting allows the committee to assess additional information and its implications” for the Fed’s policy, the central bank said in a statement.
According to economic estimates they released on Wednesday, the central bank’s 18 policymakers expect to increase its benchmark rate by an extra half-point this year, to about 5.6%.
The economic forecasts showed the Fed to be more hawkish than many observers had predicted.
Twelve of the 18 officials predicted that the Fed’s rate would rise by at least two more quarter points.
A quarter-point rise had the backing of four. Only two officials wanted to maintain current rates.
The Fed’s dramatic rate increases, which have raised the costs of mortgages, auto loans, credit cards, and corporate borrowing, were implemented in an effort to curb spending and stop the biggest inflationary wave in forty years.
In addition to rising mortgage rates, average credit card interest rates have reached record highs of 20%.
The central bank’s rate increases have coincided with a gradual decline in consumer inflation, which peaked at 9.1% in June of last year and is currently at 4%.
Core inflation, however, which excludes volatile prices for food and energy, continues to be quite high.
When compared to a year prior, core inflation in May was 5.3%, far more than the Fed’s objective of 2%.
Powell and other prominent authorities have also stated that they wish to evaluate the potential economic impact of a reduction in bank lending.
As interest rates have increased, banks have been limiting their lending, and loan demand has decreased.
According to some observers, the failure of three large banks in the spring may have caused lenders to get anxious and drastically tighten their credit requirements.
Since March of last year, the Fed has increased its benchmark rate significantly by 5 percentage points, which is the highest rate of increase in 40 years.
This week’s meeting’s “skipping” of a rate rise may have been Powell’s best chance to bring a divided policymaking committee together.
The 18 committee members look split between those who want one or two more rate increases and those who prefer to keep the Fed’s main rate at its current level for at least a few months and watch to see if inflation continues to decline.
This group worries that increasing too quickly will increase the chance of starting a severe recession.
The government’s release of inflation figures this week, which revealed that the majority of the increase in core prices was due to expensive rent and used cars, was positive.
Later this year, such expenses ought to decrease. For instance, a decline in wholesale used automobile prices in May increases the likelihood that retail prices will do the same.
Additionally, as more new leases are signed with modest price increases, rents are predicted to decrease in the upcoming months.
However, it will take some time for such decreased prices to influence the government’s policy.
The economy has performed better so far than both the central bank and the majority of experts anticipated at the start of the year.
The fact that businesses are still actively hiring has encouraged many employees to stay in their current positions.