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Jerome Powell: FOMC hold rates, but one more hike is expected this year

The Federal Reserve decided to hold rates at its meeting on Wednesday.

Fed Chair Jerome Powell announced the decision of the Federal Reserve to hold rates steady following the Federal Open Market Committee (FOMC) meeting that was held today, September 20.

The Central Bank said it will be pausing rates for the second time this year, keeping rates at 5.25%-5.50%.

Jerome Powell says rate remains unchanged

The Federal Reserve decided to hold rates at its meeting on Wednesday. The officials also said that it will raise rates one more time this year. The officials see cuts next year, but not as much as was previously predicted.

Over ten consecutive rounds the Fed has steadily increased rates with the aim to mitigate the effects of post-pandemic inflation which resulted in the country’s highest rate in the last 40 years. The targeted range between 5.25%-5.5% is also the highest in 22 years.

“The US banking system is sound and resilient,” central bankers wrote in Wednesday’s statement. “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”

The markets generally expected that there would be no hikes in rates, but there was uncertainty as to the direction the FOMC would take with respect to rate-setting. The documents released today suggest that the officials lean towards a restrictive policy and a higher-for-longer approach to interest rates.

“We’re in a position to proceed carefully in determining the extent of additional policy firming,” Chairman Jerome Powell said during a news conference.

Powell told the media that the proposal to maintain the current policy stance received unanimous support from the central bankers.

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November to remember: another hike?

The FOMC maintained that it still prioritises bringing inflation down to a 2% target over the next few years. The officials pointed to a funds rate of 2.9% in 2026 as their specific target.

According to data from CME FedWatch Tool, the chances that the Fed brings interest rate to 5.50%-5.75% range in November is at 36.3%.

According to latest CPI data from August, consumer spending remains robust, but the central bank officials are also not keen to stop Americans from shopping too.

“It’s a good thing that the economy is strong. It’s a good thing that the economy has been able to hold up under the tightening that we’ve done. It’s a good thing that the labor market is strong,” Powell said. “The only concern is it just means that if the economy comes in stronger than expected, that just means we will have to do more in terms of monetary policy to get back to 2%.”

Hence, the decision to hold rates may begin to push consumers to make purchases that they had no previous motivation to. Mortgages, credit cards may see better reasons to be judiciously utilised.

The Summary of Economic Projections, which shows the macroeconomic forecasts of the FOMC showed more optimism than it was in June. Forecasts for unemployment which is at 3.8% were revised lower.

The next few months will likely see a central bank more measured in its rate hikes as the Fed inflation target draws closer.

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