The Federal Reserve announced it would not change its benchmark federal funds rate on Wednesday, keeping the rate at its highest level since 2001.
The Fed’s decision not to raise rates keeps the target range between 5.25% and 5.50%, marking the second month in a rowwhere the Fed chose not to adjust the rate, according to an announcement from the Federal Reserve following a meeting by the Federal Open Market Committee. The Fed last hiked rates in July, marking the 11th increase to the federal funds rate since March 2022, in an effort to tame inflation.
“The Fed is expected to raise interest rates once more this year but probably in December rather than at their meeting this week,” Dr. Thomas Hogan, senior fellow at the American Institute for Economic Research, told the Daily Caller New Foundation. “Despite recent numbers on inflation and GDP growth coming in higher than expected, Fed officials have indicated they do not plan to raise rates at this time. Fed officials believe higher than expected inflation the past two months was a temporary blip caused by high oil and gas prices and that inflation will continue to come down without needing to tighten policy further.”
Jerome Powell, chair of the Fed, hinted during statements at the Economic Club of New York on Oct. 19 that the rate could remain at its current level, foregoing expected hikes, due to the soaring price of Treasury bonds putting downward pressure on economic activity and inflation, according to CNN. The 10-year Treasury yield in recent weeks has neared 5%, a milestone last breached in 2007.
“An additional factor in any decision by the Fed is that that a rate hike will probably drive up Treasury bond yields,” Peter Earle, economist at the American Institute for Economic Research, told the DCNF. “And with the tremendous debt and deficits being accumulated by the current administration, a surge in yields will materially impact the level of debt service (required bond payments) that the US government has to make. So balancing the ‘higher for longer’ guideline, middling economic growth, and increasing labor market softness against some stickiness in the disinflation process, I think they’ll stand pat and wait for more data to arrive.”
Inflation measured at 3.7% year-over-year for both August and September, far higher than the Fed’s 2% target, but has decelerated from its recent peak of 9.1% in June 2022.
The U.S. added 336,000 nonfarm payroll jobs in September, far exceeding economists’ expectations of only 170,000 jobs added. Despite the high number of jobs added, the gain was dominated by part-time positions, with 151,000 new part-time employees joining the workforce while the total number of full-time employees dropped by 22,000.
The U.S. economy grew substantially during the third quarter, with real Gross Domestic Product rising 4.9% year-over-year, compared to just 2.1% for the second quarter.
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