The Federal Reserve, the U.S. central bank, kept its benchmark interest rate on Wednesday (31) between 5.25% and 5.50%, the highest since 2001, and warned that it will not start reducing interest rates until it sees more progress in bringing inflation back to the 2% target.
Jerome H. Powell, the Fed chair, said the country has had “six good months” of moderating inflation, but officials wanted to see ongoing progress before lowering rates.
“We believe that our rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will probably be appropriate to begin reducing policy restraint at some point this year,” Powell said. He added that when it comes to gaining enough confidence to lower borrowing costs, “we want to see more reliable data.”
Powell said he does not believe it is “likely” that the Fed will have enough evidence to reduce interest rates at its next meeting, from March 19 to 20.
High interest rates aim to weigh on demand, making it more expensive to borrow money to buy a house or a car or to expand a business, and officials think the current rate is sufficiently high to significantly weigh on economic growth.
Thus, the Fed has kept interest rates stable since July 2023 to see how its policy is affecting the economy. Inflation has been falling rapidly, even though the labor market remains solid and global growth continues strong.
The resilience of the American economy surprises many analysts. Consumers continue to spend at a solid pace, global growth exceeded expectations at the end of 2023, and the labor market continues to advance.
Source: The New York Times