The US Federal Reserve (Fed) on Wednesday announced a pause in interest rate hikes and to keep them between 5.25 % and 5.50 %, after eleven consecutive hikes since March 2022, although it did not clarify whether there will be further increases before the end of the year.
“The Committee would stand ready to adjust the stance of monetary policy as appropriate if risks emerge that could impede the achievement of its objectives,” said the US central bank, which decided to keep rates in the current range of 5.25% and 5.5%, their highest level since 2001.
It is unclear, therefore, whether the Fed will make any further rate hikes at its two meetings before the end of the year, in late October and December.
The Fed said in its statement that the Federal Open Market Committee (FOMC) will continue to evaluate additional information and its implications for monetary policy.
That assessment, it added, will take into account a wide range of information, from labour market conditions, inflationary pressures, inflation expectations, and financial and international developments that may have an impact.
The Fed finds that interest rate hikes to date are leading to tighter credit conditions affecting economic activity.
According to its findings, the US banking system is “strong and resilient” and tighter credit conditions for households and businesses are likely to affect economic activity, hiring and inflation.
“The extent of these effects remains uncertain. The Committee remains very attentive to inflation risks,” said the note, which underlined the desire to keep inflation at the 2 % target.
The committee’s statement came just minutes before Fed Chairman Jerome Powell is due to hold a press conference to explain this decision.
It will be crucial what tone he uses, whether he will opt more clearly for an end to hikes or whether he will maintain the same position he has had until now, that of waiting for the economic data to decide, at each meeting, what to do.
At all of its meetings since the start of the hiking spree, the members of the FOMC, the body in charge of deciding whether or not to raise rates, have decided to raise them, except for last June, when they decided to take a pause. In July, however, they raised them again.
Pause in a complex inflation context
This pause comes against a complex backdrop for inflation. After a run of more than a year of declines since the peak of 9.1% in June 2022, prices rose by five tenths of a percentage point in August to 3.7%, the second consecutive rise.
However, the annual rate of core inflation, which measures the rise in prices excluding energy and food – and is one of the indicators on which the Fed most closely focuses its decisions – fell by 0.4 percentage points in August and confirmed its downward trend.
As for unemployment, another of the key data analysed by the Fed to decide on possible hikes, job creation in the last few months has slowed down and in August only 187,000 net jobs were created (below the average of the last twelve months, 271,000).
Although the rate rose by three tenths of a percentage point to 3.8 %, the figure is still robust, in a context of poor growth in the US economy, which in the second quarter grew by 0.5 % with respect to the previous quarter, according to the latest official data.