US Fed holds interest rates at 22-year high / Photo: Mandel NGAN - AFP
US Fed holds interest rates at 22-year high
The US Federal Reserve voted Wednesday to hold interest rates at a 22-year high for a 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 percent and 5.5 percent gives policymakers time to "assess additional information and its implications for monetary policy," the central bank said in a statement.
Despite the lack of monetary tightening, the United States still has a long way to go in bringing inflation down to its long-term two percent target sustainably, Fed Chair Jerome Powell said at a news conference on Wednesday.
He added that the Fed, "is not thinking about rate cuts right now at all."
The Fed's widely expected decision to hold rates steady marks the first time officials have done so at two consecutive meetings since they began tightening monetary policy last year.
The US central bank added that any future decisions on policy firming would "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
- Strong growth -
Since peaking at more than seven percent in June last year, inflation as measured by the Fed's favored yardstick has slowed by more than half -- although it remains stuck firmly above three percent.
Many analysts, including those employed by the Fed, were predicting the United States would enter a recession this year due to the rapid pace of interest rate hikes.
When the Fed hikes interest rates it raises the cost of borrowing from the bank, which is supposed to dampen economic activity and weaken the labor market.
But despite its aggressive monetary tightening, the Fed noted that "economic activity expanded at a strong pace in the third quarter."
Job gains remain strong, and the unemployment rate has stayed low, it added.
The Fed's move is likely to raise expectations that it is done hiking interest rates and is moving into a prolonged pause.
- Surging yields -
Despite a recent series of strong economic data, the Fed's rate decision has been made easier by a surge in yields on longer-term government bonds.
Whereas the Fed's key short-term rate mainly affects the borrowing rates offered by banks, Treasury yields determine "everything from mortgage rates to corporate and municipal bond yields," KPMG chief economist Diane Swonk wrote in a recent note to clients.
The Fed is "attentive to the increase in longer-term yields, which have contributed to a tightening of broader financial conditions since the summer," Powell said.
D.Nelson--RTC
