The Federal Reserve of the United States held interest rates steady at a range of 5%-5.25% at its meeting on Wednesday, the first such meeting with no changes since January 2022.
On the other hand, Federal Reserve officials upped their interest rate estimates for the current year, indicating the likelihood of an increase to 5.6%. Two more rate hikes are possible this year, and three officials are projecting that rates might go as high as 6% if things continue as they are.
Inflationary pressures are still high, Federal Reserve Chairman Jerome Powell said during a news conference on Wednesday, and there is still a long way to go before inflation reaches the Fed's target.
Up from the prior projection of 4.3%, policymakers anticipate interest rates will decline by 100 basis points next year, to around 4.6%.
Powell stated that the economy will have more time to adapt to the previous rate hikes as a result of the recently announced pause in rate hikes. Because of this, we will be able to fully understand the repercussions of these changes and how they will affect the economic and financial system.
The Federal Reserve has had 10 monetary policy meetings in the course of the past 14 months, during which interest rates have been hiked at each meeting to their current, record-high level of 5%-5.25% since 2007.
Inflation reached a peak of 9.1% in June 2022 and has since been falling. According to figures released on Tuesday, headline inflation increased by a very modest 4.1% in May. The core inflation, which excludes volatile food and energy prices, came in at 5.3% in May, almost identical to April's 5.5% reading. However, both are still quite a bit higher than the goal inflation rate of 2% set by the Fed.
The Fed now predicts that inflation will be around 4% by the end of the year, up from the earlier projection of 3.6%. The forecast for the unemployment rate has also improved, with a figure of 4.1% now anticipated instead of the prior 4.5%. The earlier prediction of 0.4% growth in the economy for this year has been raised to 1%.
Fed officials emphasized that a tightening of lending conditions for households and businesses might put pressure on the economy, employment, and inflation; however, the extent to which this pressure will be exerted is still unknown.
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