The Federal Reserve for FOMC have continued to pause rates

The Federal Reserve for FOMC have continued to pause rates.


The Federal Reserve has opted to keep interest rates unchanged at its year-end meeting but conveyed that it has concluded its series of interest rate hikes in the significant battle against inflation. Additionally, the Fed hinted at the possibility of reducing interest rates three times in the coming year.

The decision from the Federal Open Market Committee (FOMC) indicates that the Fed's primary benchmark borrowing rate is likely to reach a peak, settling at a 22-year high within the range of 5.25% to 5.5%.

Since March 2022, policymakers have been swiftly raising interest rates, elevating the key federal funds rate from nearly zero to its present target range in just 16 months. This accelerated rate of hikes is the most rapid since the 1980s, driven by the aim of mitigating the economy's soaring inflation, which is currently experiencing one of the most substantial increases in decades.

To date, the Federal Reserve has been achieving progress in controlling inflation without negatively impacting economic growth. In November, prices increased by a modest 3.1 percent compared to the previous year, a notable decrease from the striking 9.1 percent rate observed in June 2022. The current inflation level is only about one percentage point above the preferred threshold set by the Fed. Concurrently, the unemployment rate has sustained below 4 percent for an extended period, reaching 3.7 percent in November, marking the lengthiest duration since the 1960s.

With the prospect of lower inflation on the horizon, analysts closely monitor indicators signaling how the Federal Reserve's hawkish stance may evolve, specifically regarding the potential timing of reducing borrowing costs.

In the updated projections accompanying the Fed's December decision, none of the Fed officials anticipated higher rates from the current juncture, indicating that borrowing costs may have already reached their peak. Simultaneously, the Fed outlined a target range of 4.5-4.75 percent by the end of 2024, a 0.75 percentage point reduction from the current level.

Measured by various standards, the Fed's primary interest rate is currently exerting the most influence on the economy in over a decade. Moreover, there is no imperative need for the Fed to further raise interest rates, as doing so could apply additional brakes to the economy. An essential aspect of the ongoing interest rate discussion is the "real" cost of money, which considers interest rates adjusted for the overall inflation level. As inflationary pressures ease and borrowing costs remain stable, this margin expands. If the Fed successfully manages to gradually temper inflation without triggering a recession, experts believe interest rates may follow the downward trajectory of inflation.