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WASHINGTON: The US Federal Reserve voted Wednesday to hold interest rates at a 22-year high for the second straight meeting, as it moves to slow stubborn inflation without damaging the strong economy.The Fed’s decision to keep its benchmark lending rate between 5.25 per cent and 5.50 per cent gives policymakers time to “assess additional information and its implications for monetary policy,” the central bank said in a statement.The Fed’s objective in maintaining these rates is to cool down demand, with the hope of encouraging companies to slow down their price hikes. Despite the economy’s recent resilience, with notably robust growth this summer, inflation has gradually declined from its peak in 2022, dropping to 3.4% as of September from over 7%.Federal Reserve policymakers are now focused on bringing inflation back in line with the central bank’s 2% target. The combination of economic strength and moderating inflation has given them hope for a relatively smooth “soft landing” in which the economy gradually cools off without significant disruptions.A central question facing Fed officials is whether they will need to implement one final rate increase in the coming months, a possibility they have not ruled out. In their post-meeting statement, the Fed emphasized their consideration of factors like the cumulative tightening of monetary policy, the time it takes for such policy changes to impact the economy, and various economic and financial developments.In their previous meeting in September, policymakers had forecasted that one more quarter-point rate increase would likely be necessary by the end of 2023. However, they did not provide updated economic projections in this meeting, with the next set scheduled for release after the Fed’s meeting in December. Conditions have evolved, particularly due to a notable increase in longer-term interest rates in financial markets. While the Fed manages short-term borrowing costs, longer-term rates adjust at a delay for various reasons. The recent surge in these rates has made mortgages and business debt more expensive, potentially helping to cool the economy and reducing the need for further rate hikes.The Fed acknowledged that tighter financial and credit conditions for households and businesses are likely to have a dampening effect on economic activity, hiring, and inflation.Jerome Powell, the Fed chair, was set to hold a news conference, where he might offer additional insights into how the Fed is evaluating the rise in longer-term rates alongside recent signs of a robust economy.While the Fed’s actions have had some impact on sectors like the housing market, the labor market has continued to show resilience. Hiring has slowed down but remains faster than pre-pandemic levels, and wage growth, while cooling, still outpaces pre-2020 rates.As Americans secure jobs and wage increases, they continue to spend, often exceeding economists’ expectations, resulting in overall faster growth than initially anticipated a year and a half into the Fed’s efforts to curb inflation.In their statement, Fed officials upgraded their assessment of the economy, describing it as expanding at a “strong” pace, a change from the previous “solid” characterization.The ongoing economic strength presents a potential challenge for central bankers if it persists. If consumers maintain high demand for goods and services, companies may continue raising prices, making it more challenging to eliminate the remnants of rapid inflation. Consequently, policymakers are closely monitoring the economy’s momentum as they deliberate on their future policy decisions.At the same time, the Fed is cautious not to apply the brakes too forcefully, as doing so could risk pushing the economy into a recession when it may not be necessary. Policy changes often have delayed effects, and it can take months for the full impact of interest rate increases to materialize.(With inputs from agencies)
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