For the second time in its past three meetings, the Fed has decided to hit pause on further rate hikes this month, while signaling at the same time that it may keep interest rates at a high level for longer than previously expected. Following a two-day meeting of the Federal Open Market Committee (FOMC), Fed chairman Jerome Powell announced that the target range for the federal funds rate would be kept at 5.25 to 5.50 percent for the time being, allowing the committee “to assess additional information and its implications for monetary policy.” In other words, the Fed is buying some time, trying to figure out where inflation, the labor market and economic activity are heading.
Like in June, when the Fed had paused rate hikes for the first time but done so in the most hawkish way possible by also raising its projections of where the policy rate would eventually peak, the FOMC sent some mixed messages after its latest meeting as well. In light of an upward revision of expected GDP growth through 2025 and a downward revision of the projected unemployment rate, the committee now expects to keep higher rates for longer than previously anticipated. The latest median projection for the midpoint of the target rate range at the end of 2024 is 5.1, up from 4.6 in June. The projection for the end of 2025 was also raised by 50 basis point, from 3.4 to 3.9, as economic conditions are expected to remain strong enough to require such restrictive policy. At the median, FOMC members now expect one more rate hike this year followed by two 25 point cuts in 2024.
“We are prepared to raise rates further if appropriate and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective,” Powell said in a press conference on Wednesday. “Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions,” he added.
This chart shows the U.S. federal funds target rate since 2007.
