The Federal Reserve Holds Benchmark Interest Rate Steady
The Federal Reserve announced on Wednesday that it will maintain its benchmark interest rate, providing relief to borrowers following a rapid series of rate hikes not seen in four decades.
The central bank has decided to keep the federal funds rate in a range of 5.25% to 5.5%, marking the third consecutive pause since July, when the last rate increase occurred.
Since the tightening cycle began in March of 2022, the Fed has raised the federal funds rate 11 times in an effort to combat the highest inflation levels in 40 years. This strategy has largely succeeded in curbing inflation and has even caused prices to decrease for certain products, such as used cars, furniture, and appliances.
However, the higher borrowing costs have made it difficult for many homebuyers to enter the market and have increased the expenses associated with buying cars, carrying credit card debt, and taking out loans.
While most Wall Street economists believe that the Fed will not raise rates further, they anticipate that the benchmark rate will remain steady for several more months. The focus now shifts to when policymakers might begin to lower rates, with the majority of analysts predicting that the central bank may make its first rate cut in May or June 2024.
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According to David Kelly, chief global strategist at J.P. Morgan Asset Management, the recent stock market rally has been partly fueled by expectations for rate cuts in 2024. In an email before the announcement, Kelly stated that Federal Reserve Chairman Jerome Powell will acknowledge progress on growth and inflation, and may even suggest a widening runway for a soft landing. However, Kelly believes that Powell will be cautious not to trigger any further rally in the stock and bond markets towards the end of the year. Therefore, Powell's remarks may express more confidence in the outlook for real economic growth and more doubt about the decline in inflation than he truly feels or the data warrants.
