US Fed Leaves Interest Rates Unchanged

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Facts

  • Following 11 rate hikes in 18 months, the US Federal Reserve (Fed) chose on Wednesday to leave benchmark interest rates unchanged between 5.25%-5.5% in the bid to tackle inflation.1
  • The decision is the result of a two-day policy meeting, with Fed Chair Jerome Powell forecasting that a restrictive monetary policy was likely set to last until 2026.2
  • The 5.25%-5.5% range remains the highest rate in around 22 years. The news comes as the inflation rate for the year to August, according to the core personal consumption expenditures price index, dropped to 3.7%.3
  • Powell stated that a 'soft landing' was the 'primary objective' for the US economy, with the Fed being 'fairly close' to the end of its cycle of rate increases. Analysts expect the Fed to raise interest one more time before the end of 2023.4
  • Interest rates were last raised by 0.25% in July. The Fed also adapted its US economic forecasts from June – with its GDP growth prediction in 2023 up 1.1% to 2.1%, 2024 GDP increased by 0.4% to 1.5%, and unemployment rates also down from 4.1% to 3.8% and from 4.5% to 4.1% in 2023 and 2024, respectively.5
  • The Fed's target inflation rate is 2%. The Federal Open Market Committee is set to meet next on Oct. 31, with another interest rate decision on Nov. 1.6

Sources: 1NPR Online News, 2Reuters, 3CNBC, 4Associated Press, 5Tradingeconomics and 6NBC.

Narratives

  • Pro-establishment narrative, as provided by Msn. Signals of a potential soft landing by the Fed are becoming ever clearer, and a cooling labor market is a positive sign that the US economy is moving in the right direction. However, with inflation still nowhere near the desired 2% mark and multiple potential hiccups looming, there's more to do before consumers can finally breathe a sigh of relief, which is why the Fed is right to stay its course.
  • Establishment-critical narrative, as provided by The hill. By doubling down on high interest rates for longer, the Fed is risking a financial crisis and economic recession in 2024. With approximately $24.5B of the $1.5T loan market already defaulting – with 2023 expected to be the third worst defaulting year in US history – it is hard to see how a further collapse will be avoided and debts repaid in the current economic environment.

Predictions