Fed Holds Interest Rates Steady For Second Meeting In A Row—As Rate Hikes Weigh On Markets

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Topline

The Federal Reserve again decided to support liking rates astatine nan aforesaid level, nan cardinal slope announced Wednesday, though rates stay astatine their highest level since 2001, causing sweeping effects connected nan economy.

The target national costs complaint is staying level astatine 5.25% to 5.5%. Pictured is Federal Reserve president ... [+] Jerome Powell.

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Key Facts

The policy-setting Federal Open Markets Committee decided to support nan target national costs rate, which nominally only determines overnight lending costs betwixt banks but heavy influences each borrowing rates, dependable astatine 5.25% to 5.5%.

It’s nan first clip nan sheet has decided not to raise rates successful consecutive meetings since nan opening of 2022, erstwhile nan Fed began its melodramatic displacement distant from near-zero rates.

The Fed indicated it will proceed to measure nan “extent of further argumentation firming,” declining to perpetrate that nan existent tightening rhythm is complete arsenic bullish investors cling to hopes rates will diminution importantly successful 2024 and beyond.

Stocks were level instantly aft nan Fed announcement, and nan Dow Jones Industrial Average is up 100 points, aliases 0.3%, for Wednesday’s session.

Key Background

The Fed’s rate-hiking campaign—designed to stem inflation—has caused an extended slump for stocks, contributing to nan S&P 500’s 12% diminution since nan extremity of 2021. The effects of nan accelerated monetary tightening drained enslaved marketplace sentiments moreover greater. Yields for 10-year U.S. Treasury notes person much than tripled since nan extremity of 2021, climbing supra 5% for nan first clip since 2007 earlier this month. Rising enslaved yields bespeak a diminution successful nan worth of nan plus people arsenic already-issued bonds suffer worth successful nan secondary market. Beyond roiling equity markets and causing firm liking expenses to skyrocket, elevated rates person impacted nan American consumer, arsenic owe rates are much than doubly arsenic pricey arsenic they were 2 years ago, sitting astatine a 23-year precocious of 7.8%. The cardinal bank’s ostentation conflict whitethorn not beryllium over: Prices roseate 3.7% year-over-year arsenic of past month, good beneath past year’s highest but still supra nan Fed’s 2% target.

Crucial Quote

Fed unit seemingly “have coalesced astir nan position that nan caller tightening successful financial conditions led by higher semipermanent liking rates has made different hike unnecessary,” Goldman Sachs economist David Mericle wrote to clients successful a play statement previewing nan complaint decision.

Surprising Fact

Though recessions typically travel abrupt rises successful rates, nan U.S. has avoided entering specified a prolonged downturn truthful far. The system grew a two-year champion 4.9% past 4th connected an yearly basis.

Further Reading

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Forbes AdvisorFederal Funds Rate History 1990 to 2023

MORE FROM FORBESFed Pauses Interest Rate Hikes Again-But Ups Long-Term ForecastBy Derek Saul


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