By Kate Gibson
/ MoneyWatch
Explaining the latest on inflation
The Federal Reserve on Wednesday held its benchmark interest rate steady for a second consecutive time, while upgrading its view of the U.S. economy and leaving open the possibility of additional rate hikes should inflation quicken in coming months.
The central banksaid in a statement after its latest meeting that it would maintain the federal funds rate in a range of 5.25% to 5.5%, the same level as it announced two meetings ago, in July. The Fed has now hiked its key short-term interest rate just once since May.
The Fed document noted that recent upheaval in the financial markets has pushed longer-term rates to more than 15-year highs and helped fuel higher borrowing rates across the U.S. economy.
Speaking at a news conference, Fed Chair Jerome Powell indicated that the acceleration in longer-term interest rates will slow the economy if they remain higher high for a prolonged period. But the Fed isn't yet confident that its own benchmark rate is high enough to curtail growth over time, he cautioned.
Powell also said 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."
Fed officials changed their wording slightly in describing the pace of economic growth, now using the term "strong" instead of "solid" in taking into account improved economic reports since the September meeting of the Federal Open Market Committee, or FOMC.
The U.S. economygrew at a 4.9% annualized rate last quarteras Americans ramped up their spending on cars, restaurant meals,vacations and concert tickets.
The Fed has sought to douse the hottest inflation in four decades by curbing demand for homes and autos, with price increases moderating this year.
While the Fed opted against increasing rates today, policymakers suggested they're prepared to tighten further if inflation flares.
"By leaving rates unchanged while continuing to flag the possibility of further tightening to come, the Fed indicated today that it remains in 'wait and see' mode," Andrew Hunter, deputy chief U.S. economist with Capital Economics, told investors in a research note. "But we suspect the data over the coming weeks will see the case for a final hike continue to erode, with the Fed likely to start cutting rates again in the first half of next year."
The Fed has quickly hiked borrowing costs to 22-year highs from near zero levels in March 2022 to combat inflation, making it pricier for Americans to obtain loans such as mortgages and to carry credit card debt.
Nationally, the average long-term fixed mortgage rateis nearing 8%, its highest level in 23 years.
— The Associated Press contributed to this report.
Kate Gibson is a reporter for CBS MoneyWatch in New York.
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I'm a financial expert with a deep understanding of economic policies, particularly in the context of the United States. My expertise is rooted in comprehensive knowledge of monetary policy, central banking, and the broader economic landscape. I've closely followed developments in inflation, interest rates, and the actions of institutions like the Federal Reserve.
Now, let's delve into the article by Kate Gibson, dated November 1, 2023, on MoneyWatch, where she discusses the Federal Reserve's recent decisions and statements regarding inflation and interest rates.
The Federal Reserve, in its latest meeting, chose to maintain its benchmark interest rate within the range of 5.25% to 5.5%, marking the second consecutive time it held rates steady. This decision comes amid an upgraded view of the U.S. economy. Notably, the Fed is open to the possibility of additional rate hikes should inflation accelerate in the coming months.
Fed Chair Jerome Powell emphasized that recent upheavals in financial markets have led to longer-term interest rates reaching over 15-year highs, impacting borrowing rates across the U.S. economy. Powell expressed concerns that prolonged elevated interest rates could slow the economy. However, the Fed remains uncertain if its benchmark rate is high enough to curtail growth over time.
Powell mentioned that the effects of previous rate hikes are yet to be fully felt in the economy, and policymakers want to take time to assess their impact. The Fed has slightly adjusted its language, now describing the pace of economic growth as "strong" instead of "solid" since the September meeting.
The U.S. economy grew at a robust 4.9% annualized rate in the last quarter, driven by increased spending on various sectors such as cars, restaurant meals, vacations, and concert tickets. The Fed's objective is to curb demand for homes and autos to address the highest inflation in four decades.
While the Fed refrained from raising rates in this meeting, it signaled readiness to tighten further if inflation flares up. Analysts, such as Andrew Hunter from Capital Economics, believe that the Fed's cautious approach might shift, and rate cuts could be on the horizon in the first half of the next year.
The article also notes that the Fed has significantly increased borrowing costs to combat inflation, with the average long-term fixed mortgage rate nearing 8%, the highest level in 23 years.
This summary provides a comprehensive overview of the key concepts discussed in the article, covering the Federal Reserve's stance on interest rates, inflation concerns, economic growth, and the potential future actions of the central bank.
