The Federal Reserve held interest rates steady on Wednesday, ending a streak that saw ten rate hikes in a row.
The rate pause keeps the Fed’s target rate within a range of 5% and 5.25%, bringing an end to the streak of rate hikes that began in March 2022. Most economists anticipated a rate pause, but believe this is not the last rate hike of the year due to an inflation rate of 4%. (RELATED: Inflation Ticks Down — But Remains Well Above Fed’s Target)
“In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the Federal Reserve announced on Wednesday.
As of Wednesday morning, markets were predicting 95% odds that the Fed would keep the federal funds rate at its current level, according to CNBC. The rate remains at the highest level since 2007, prior to the 2008 financial crisis, according to the Federal Reserve Bank of St. Louis.
“The Fed still needs to raise rates much higher and sell off much more of the balance sheet,” EJ Antoni, research fellow in the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF.
“Very few people are aware that the Fed is currently using extraordinary measures to ‘sterilize’ $6 trillion, limiting the inflationary impact from creating those trillions of dollars for the government to spend, but also starving the private market for capital investment,” Antoni said in reference to the Biden administration’s stimulus injection after the COVID-19 pandemic.
The decision comes as the Consumer Price Index (CPI), a key gauge of inflation, dipped down to 4% year-over-year, which is still far from the Fed’s target of 2% inflation.
Some experts, including Pete Earle, economist at the American Institute for Economic Research, warn that the May unemployment data could complicate the effort to hit the inflation target, as weak job performance indicates a need to pause or lower interest rates.
“Fed policymakers (could be) in a riskier place than they were previously… there’s an increasing chance that additional increases in policy rates result in renewed financial instabilities while leaving rates where they are—pausing—means a slower and more painful disinflationary process,” Earle told the DCNF.
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