US Fed poised to keep rates unchanged as it opens key meeting
Source: AFP
The US central bank opened a key policy meeting Tuesday, with officials widely expected to hold interest rates at a 22-year-high as they balance efforts to lower inflation while staving off a recession.
Interest rate hikes slow down price increases by raising the cost of borrowing from the bank, which dampens economic activity and weakens the labor market.
"We anticipate the Fed will keep the federal funds rate unchanged at 5.25 percent to 5.50 percent," said EY chief economist Gregory Daco, on the outcome of the two-day meeting.
He added that Fed Chair Jerome Powell would likely stress that the central bank can proceed carefully in balancing risks, given a "broad set of new and old uncertainties."
For now, the Fed has lifted the benchmark lending rate 11 times since March 2022.
But resilient consumer spending has helped keep economic growth unexpectedly high.
PAY ATTENTION: Donate to Legit Charity on Patreon. Your support matters!
Consumer inflation, at more than three percent, remains firmly above policymakers' long-term two percent target as well.
"The stronger incoming data mean officials won't rule out an additional rate hike," said Michael Pearce of Oxford Economics in a recent note.
But this will be conditional on a continued pick-up in job growth and inflation, which is unlikely, he added.
"The broader trend in inflation remains downward, and officials have made clear they won't change course based on one month's data," Pearce said.
Policymakers will also be keeping an eye on conflict in the Middle East, which could weigh on markets.
Furthermore, the Fed will be considering other pressures such as a recent surge in yields on longer-term government bonds.
The Fed's key short-term rate mainly affects the borrowing rates offered by banks, but Treasury yields help determine a range of other matters from mortgage rates to corporate and municipal bond yields.
With financial conditions tightening, analysts expect the Fed can continue holding rates steady.
Looking ahead, Daco said it would be interesting to hear Powell's views on suggestions that the focus of rate decisions should shift -- from how high to raise interest rates to how long they should be held at restrictive levels.
Source: AFP
