Business

Fed Keeps Interest Rates At 22-Year High As Inflation Persists

(Photo by Alex Wong/Getty Images)

Daily Caller News Foundation logo
Will Kessler Contributor
Font Size:

The Federal Reserve announced a pause in hikes for its benchmark federal funds rate on Wednesday, keeping the rate at its highest level since 2001.

The Fed’s decision not to raise rates keeps the target range between 5.25% and 5.50%, following a similar move from June, where the Fed chose to keep rates steady before raising them again in July, according to an announcement from the Federal Reserve following the Federal Open Market Committee (FOMC) meeting. The last rate hike in July marked the 11th increase to the federal funds rate since March 2022 in an effort by the Fed to stave off inflation that peaked in June 2022 at 9.1%. (RELATED: Half Of Americans Are Priced Out Of The Car Market. Here’s Why)

“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation,” the Federal Reserve said in a statement Wednesday. “The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.”

“The bigger question is whether we will see a rate increase at the FOMC meetings in November or December,” Dr. Thomas Hogan, senior fellow at the American Institute for Economic Research, told the Daily Caller New Foundation. “A few weeks ago, it seemed like the Fed might be done hiking and keep interest rates stable for the rest of the year, but the recent [Consumer Price Index] report was much higher than expected, which makes it more likely they will raise rates again this year.”

The Consumer Price Index (CPI), a common measure of inflation, rose to 3.7% in August year-over-year, which is up from 3.2% in July, but far from the Fed’s target inflation rate of 2%. Core CPI, which excludes the volatile categories of energy and food, remained high in August at 4.3% year-over-year.

Powell hinted at the possibility of more interest rate hikes in August at the Jackson Hole Economic Symposium, noting that factors like high inflation, a hot labor market and sustained economic growth would factor into the decision to raise rates.

Gross Domestic Product, a measure of economic growth, showed that the economy was cooler than previously thought after the Bureau of Economic Analysis revised its estimate for the second quarter down to 2.1% growth instead of 2.4%.

The U.S. job market has been increasingly showing signs of cooling, with only 187,000 nonfarm payroll jobs added in August and a collective 110,000 fewer jobs than previously thought for the months of June and July after a September revision.

Inflation is a major concern for Americans, with 50% of Republicans, 40% of Democrats and 40% of independents ranking it in their top three issues in terms of importance, according to a poll conducted of 2,500 people by Noble Predictive Insights from July 31 to Aug. 3. The economy/jobs was ranked in the top three of importance for 25% of Republicans, 20% of Democrats and 26% of independents.

“The most important piece of information we’ll get from this meeting is the FOMC’s interest rate projections, which will give us a better idea of what to expect for the rest of the year,” Hogan told the DCNF. “Their median projection from June was 5.6 percent by the end of 2023, which implies one more rate increase this year. I expect them to stick with that projection, but if they change it, that would give us a strong indication of what they expect to do in November and December.”

As of Tuesday, the market was predicting more than 99% odds that the rate would remain the same, according to CME Group.

All content created by the Daily Caller News Foundation, an independent and nonpartisan newswire service, is available without charge to any legitimate news publisher that can provide a large audience. All republished articles must include our logo, our reporter’s byline and their DCNF affiliation. For any questions about our guidelines or partnering with us, please contact licensing@dailycallernewsfoundation.org.