Federal Reserve officials announced Wednesday its key short-term interest rate would remain unchanged for a second straight time, though they did hint at further potential rate increases if inflation pressures increase in coming months.
In a statement released after it’s latest meeting, the Fed said it would keep its benchmark rate at about 5.4%, which represents its highest level in 22 years. The Fed has increased its rate 11 times since March 2022, though it has now raised rates only once since May.
The central bank’s latest statement noted that recent tumult in the financial markets has sent longer-term interest rates to near 16-year highs and contributed to higher borrowing rates across the economy, the Associated Press reported.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity,” the statement said.
At a news conference, Chair Jerome Powell suggested that the surge in longer-term interest rates will slow the economy if those higher rates stay high for a prolonged period. But he cautioned that the Fed isn’t yet confident that its own benchmark rate is high enough to reduce growth over time.
Still, the Fed chair said the central bank’s policymakers recognize that the effects of their rate hikes have yet to be fully felt in the economy and that they want to take time to assess the impact.
“Slowing down” the rate hikes, Powell said, “is giving us a better sense of how much more we need to do, if we need to do more.”
The Fed chair expressed confidence that inflation, despite some signs of persistence in the most recent monthly data, is still heading lower even as the economy has kept growing.
“The good news,” Powell said, “is we’re making progress. The progress is going to come in lumps and be bumpy, but we are making progress.”
Consumer inflation has dropped from a high of 9.1% in June 2022 to 3.7% last month. But recent data suggests that inflation remains persistently above the Fed’s 2% target.
