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 increase rates twice more this year, perhaps as early as next month.
The Fed’s decision to maintain its benchmark rate at approximately 5.1 percent, the highest level in 16 years, indicates that it thinks the much higher borrowing costs it engineered have succeeded in containing inflation to some extent. Top Fed officials, meanwhile, want additional time to thoroughly evaluate the impact of their rate rises on inflation and the economy.
The Fed said in a statement that “holding the target rate steady at this meeting allows the committee to assess additional information and its implications” for the organisation’s policy.
According to economic projections 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 percent.
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. Average credit card rates have reached a record high of over 20% and have increased along with mortgage rates.
Consumer inflation has steadily decreased, from a high of 9.1 percent in June of last year to 4 percent as of May, in tandem with rate increases by the central bank. Core inflation, however, which excludes volatile prices for food and energy, continues to be quite high. When compared to a year ago, core inflation in May was 5.3 percent, which is far higher than the Fed’s 2 percent objective.
