US Fed Leaves Rates Unchanged

Facts

• Federal Reserve (Fed) Chair Jerome Powell announced Wednesday that the Federal Open Market Committee (FOMC) decided against raising the key interest rate for an 11th consecutive time, deciding to observe the economy at the current rate while signaling future hikes in 2023.¹
• The FOMC released a unanimous policy statement at the end of a two-day meeting, saying that “holding the target (interest rate) range steady… allows the committee to assess additional information and its implications for monetary policy.”²
• The benchmark rate still sits at a 16-year high of 5.1%, and Powell hinted that Wednesday's decision could be more of a skip instead of a pause on rate increases. The Fed could raise rates again as soon as next month and two more times this year.³
• The Fed has been aggressive in its fight against rampant inflation, and its 10 consecutive rate hikes have caused lending rates to skyrocket, with 30-year mortgage rates having increased from 3.2% to 6.8% since March 2022, increasing monthly payments by 50% on $300K homes.⁴
• Inflation has been a major problem for the US economy and reached a 40-year high last June at a rate of 9.1%. While inflation reached a two-year low of 4% in May, Powell projects that the economy “has a long way to go” before reaching the desired 2% inflation rate.⁵
• The stock market had mixed reactions to the widely expected rate pause, rallying from early losses. The Dow Jones fell 231 points (0.7%), while the S&P 500 fell by 0.08% and the Nasdaq rose 0.4%.⁶

Sources: ¹CNBC, ²New York Post, ³Associated Press, ⁴CBS, ⁵Guardian, and ⁶CNN.

Narratives

• Establishment-critical narrative, as provided by ZeroHedge. The markets, just like the Fed itself, have no idea what's going on as the central bank continues its unsuccessful fight against inflation. Some may try to put a positive spin on the fact that rates aren’t increasing for the 11th consecutive time, but it's quite obvious that there isn’t a lot of progress in bringing down core inflation, and rate hikes are all-but guaranteed as soon as next month. There’s a lot of volatility, and the only certainty is that inflation will remain and the Fed will hike rates yet again.
• Pro-establishment narrative, as provided by CNN. While we're not out of the woods in the battle against inflation, there are signs that the American economy is heading in the right direction. The Fed’s decision shows that inflation has slowed down enough to not need another rate hike and offers some breathing room to see the direction of inflation at the current rate. While inflation isn’t going down as fast as many would like it to, it is going down nonetheless, and that’s a reason to be optimistic.

Predictions