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    Federal Reserve Holds Benchmark Interest Rate Steady Amidst Inflation Battle

    Borrowers Get a Reprieve as Fed Pauses Rate Hikes After 11 Increases Since March 2022

    The Federal Reserve has pressed the pause button on its extended campaign against inflation, keeping its benchmark interest rate steady and providing some relief to borrowers who have endured 11 rate hikes since March 2022.

    The Fed announced that it will maintain the federal funds rate within the range of 5.25% to 5.5%, the same level as its previous meeting in July. Economists, in a poll by financial data service FactSet, had anticipated that the central bank would maintain its benchmark rate.

    Although the Fed is not raising rates at this moment, borrowing costs currently stand at their highest levels in 22 years. This has made it more expensive for Americans to secure loans, such as mortgages, and to carry credit card debt. The central bank’s goal is to rein in the highest inflation rates seen in four decades by reducing demand for purchases like homes and cars. This battle against inflation has shown some signs of progress, with price increases moderating this year.

    However, while the Fed seeks to curb inflation without triggering a recession, it has also indicated that it might raise rates once more this year, depending on economic conditions.

    “We’re prepared to raise rates further, if appropriate,” stated Fed Chair Jerome Powell during a press conference. He added, “The majority of [Fed meeting] participants believe it is more likely than not for us to raise rates one more time in the two remaining meetings this year.”

    Matt Schulz, a credit industry analyst for LendingTree, highlighted concerns about consumer debt prior to the rate announcement, saying, “Consumers have generally handled their business well as the Fed continued to raise rates, but we’re seeing signs that they’re beginning to struggle more and more.” Schulz pointed to credit card debt surpassing $1 trillion for the first time ever and delinquency rates reaching 2.77% in Q2 2023, the highest level seen in over a decade.

    Regarding future rate hikes, the Fed’s projections suggest that they anticipate maintaining high rates well into 2024. They expect to reduce interest rates just twice in 2024, down from the four rate cuts projected in June.

    When asked about the timing of rate cuts, Powell refrained from making predictions but emphasized that “the time will come at some point, and I’m not saying when.” For now, the Federal Reserve is focused on monitoring economic data and ensuring that inflation subsides to an annual rate of 2%.

    Powell underscored the importance of restoring price stability, stating, “The worst thing we can do is to fail to restore price stability.”

    The Fed’s inclination to keep rates high for an extended period reflects concerns that inflation may not be declining rapidly enough toward its 2% target. In August, inflation rose at an annual rate of 3.7%, driven by higher gasoline prices, while core inflation, which excludes volatile fuel and food costs, increased by 4.3% from a year ago.

    The Fed’s economic projections indicate that inflation may not reach 2% until 2026. Despite this, some economists believe that another rate hike at the November 1 meeting is likely unless there is a substantial weakening of inflation data between now and then.

    Joseph R. Gaffoglio, President of Mutual of America Capital Management, commented via email, “We believe that a rate hike on November 1 is likely unless the inflation data weakens materially between now and then, which we do not expect.”

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