Federal Reserve Holds Rates Steady


It wasn’t a reversal by any means, but the Federal Reserve Board voted Wednesday to maintain the federal funds rate target range.

Following the July unfreezing of June’s pause, that range is, for now, staying at 5.25% to 5.5%.

Federal Reserve Chairman Jerome Powell, in remarks to the press following the board’s latest release on monetary policy, stated once again his “dual mandate” to stabilize prices while keeping employment high.

“Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” Powell said. “Real interest rates now are well above mainstream estimates of the neutral policy rate, but we are mindful of the inherent uncertainties in precisely gauging the stance of policy. We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective.”

The pause was predicted by many analysts in the days leading up to this week’s meeting, despite an uptick in the nationwide unemployment rate in August.

Powell said that activity in the housing sector has picked up in the two months since the previous FOMC decision – though buying is not at the level it was one year ago because of higher mortgage rates that, while not a direct effect of the Fed hikes, are inextricably linked with what the board decides.

“The Federal Reserve is rightly on pause and is looking for more data before determining its next course on interest rates,” National Association of Realtors Chief Economist Lawrence Yun said in a statement following Wednesday’s decision. “Commercial real estate has come under stress from higher interest rates, which will further negatively impact community banks due to their large exposure to the sector. Therefore, the Fed needs to wait and not raise rates. Possible interest rate cuts then need to be considered once inflation is fully under control.”

But that may yet be a while. Powell said the median projection for total Personal Consumption Expenditures inflation in the Summary of Economic Projections is 3.3% by the end of this year, 2.5% in 2024, and not to 2% flat until 2026. It is expected that the Fed will raise rates one more time this year.

And even if, as Yun recommended, rate cuts do eventually start to happen, Powell said the federal funds rate could still be just shy of 4% at the end of 2025, a stark contrast to the near-zero it had been before the Fed began to raise rates in early 2022.

As with numerous prior announcements this calendar year, the FOMC in its Implementation Note directed the Federal Reserve Bank of New York to reinvest into agency mortgage-backed securities the amount of principal payments from Fed holdings of agency debt and MBS in each month that exceeds a cap of $35 billion. Additionally, on Wednesday, the Fed’s Board of Governors turned in a unanimous vote to approve the establishment of the primary credit rate at its current 5.5% level.

The next FOMC meeting convenes on Halloween, Tuesday, Oct. 31, with the Fed’s latest ruling on monetary policy due out the next day, Wednesday, Nov. 1.

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