The US Federal Reserve chose to maintain interest rates at a 22-year high, signaling a potential end to its cycle of rate hikes due to cooling inflation. The Federal Open Market Committee (FOMC) highlighted a slowdown in economic growth, moderating job gains, and persisting but slightly improved inflation in its statement.
Fed Chair Jerome Powell acknowledged progress in inflation but cautioned against premature celebration, emphasizing the need for careful assessment before considering further actions. Despite robust job gains averaging 204,000 per month over three months, the unemployment rate stayed low at 3.7%.
Economic projections indicated a slight rise in unemployment, expecting GDP growth to dip from 2.6% to 1.4% next year. The Fed acknowledged uncertainties caused by tightened financial conditions affecting economic activity, hiring, and inflation.
Powell indicated a potential end to the tightening cycle while recognizing the possibility of an unexpected economic turn. The Fed's statement hinted at cautiousness about future rate hikes, reflecting uncertainty and a likelihood of lower rates by 2024 among most officials, despite not ruling out additional hikes entirely.
Key Points:
1. The US Federal Reserve maintained interest rates between 5.25% to 5.5%, noting a possible shift from rate hikes to potential cuts due to cooling inflation, concluding their last 2023 meeting.
2. Economic activity has slowed post third-quarter strength, while job gains have moderated but remain robust, and inflation, though lowered, remains high, as per the Federal Open Market Committee (FOMC).
3. Fed Chair Jerome Powell acknowledged progress in curbing inflation but highlighted the need for caution, citing persistent figures above 2%, hinting at the uncertainty of sustained progress.
4. Payroll job gains averaged 204,000 monthly but fell from previous highs, sustaining a low unemployment rate of 3.7%, with projections expecting a slight rise in unemployment over the next year.
5. Tightened financial conditions for households and businesses might impact economic activity, hiring, and inflation, though the exact impact remains uncertain, as noted by the central bank.
6. FOMC projections indicated a revision in GDP growth from 2.6% this year to an expected cooling at 1.4% next year, suggesting a slowdown in economic growth.
7. Powell emphasized the absence of a current recession but highlighted a tangible probability of one in the upcoming year, citing potential risks and unexpected economic behaviors.
8. The Fed's consistent hold on rates for three meetings signifies a potential end to the tightening cycle that commenced in 2022 amidst soaring inflation.
9. The FOMC's statement highlighted considerations for future policy decisions, acknowledging the accumulated tightening of monetary policy and its impact on economic activity and inflation.
10. Projections from Fed officials suggest a likelihood of lower policy rates by the end of 2024, with most expecting a decrease of 50 to 75 basis points from the current levels, indicating a potential shift in monetary policy.
(With Agency Inputs)
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