The Federal Reserve announced on Wednesday that it would hold its benchmark interest rate steady, marking a pause in its extended campaign against inflation. This decision comes after 11 rate hikes since March 2022, leaving borrowing costs at their highest levels in 22 years. The federal funds rate will remain in a range of 5.25% to 5.5%, the same level as announced at the last meeting in July.
Analysts had widely expected this decision, predicting that the central bank would keep rates unchanged to avoid triggering a recession. Fawad Razaqzada, a market analyst at Forex.com and City Index, suggested that investors are now focused on interpreting the central bank’s statement for any hints about its next steps, including potential future hikes. Echoing this sentiment, Deutsche Bank analysts suggested that Fed chair Jerome Powell would emphasize a data-dependent approach for future tightening.
Even though the Fed isn’t boosting rates today, borrowing costs remain high, making loans like mortgages and credit card debt more expensive for Americans. The central bank is seeking to tame the hottest inflation in four decades by damping demand for purchases like homes and cars. This strategy appears to be showing some signs of progress as price increases have moderated this year.
However, there are concerns about consumers’ ability to handle these rising costs. Matt Schulz, the credit industry analyst for LendingTree, noted that while consumers have generally managed well with the rate increases so far, there are signs of struggle. “For example, according to the Fed, credit card debt has topped $1 trillion for the first time ever, and delinquency rates hit 2.77% in Q2 2023. That’s the highest level we’ve seen in more than a decade,” Schulz said.
In addition to the Federal Reserve, several other central banks are scheduled to make rate decisions this week. These include banks in Britain, Switzerland, Sweden, Norway, Turkey, Indonesia, and South Africa. Attention was drawn to the Bank of England (BoE), which had been expected to raise its rate again. However, data released on Wednesday revealed that UK inflation unexpectedly hit an 18-month low in August, leading to speculation that the BoE might signal a pause in its rate increases.
Looking ahead, traders will also be monitoring the Bank of Japan on Friday. Officials in Tokyo have recently hinted at a potential shift away from their long-standing policy of not raising interest rates, as pressure mounts due to a weakening yen and rising inflation.
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