The Fed Holds Interest Rates Steady

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Federal Reserve officials held the benchmark interest rate steady at the current 5.25% to 5.5% target range today as they seek to ease inflation and avoid a recession.

At the Sept. 20 conclusion of its two-day policy meeting, the Federal Open Market Committee (FOMC) announced that, while it will maintain the federal funds rate, inflation remains elevated.

The committee reiterated its commitment to returning inflation to the Fed's 2% goal and said it would be prepared to adjust its monetary policy stance “as appropriate if risks emerge” that could impede that goal. The vote by the committee, the central bank’s rate-setting group, to maintain the interest rate was unanimous.

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“Recent indicators suggest that economic activity has been expanding at a solid pace,” the FOMC said in a statement. The labor market has slowed in recent months but remains strong and the unemployment rate has remained low, it said.

“The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain,” FOMC said.

As it continues to monitor the economy, the committee said it will weigh the cumulative tightening of monetary policy, the lags with which the policy affects economic activity and inflation, as well as economic and financial developments.

The FOMC also said it will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.

The news comes as the Consumer Price Index (CPI) for August showed a sharp pick up in inflation as prices rose 0.6%, following just a 0.2% jump in the prior month. The index for gasoline was the largest contributor to the monthly all items increase, as Kiplinger reported.

In July, the Fed raised interest rates by 25 basis points (0.25%), bringing the short-term federal funds rate to the target range of 5.25% to 5.5%. It was the 11th rate increase since March 2022 aimed at curbing inflation, but it followed a pause in June. The move was widely expected even as Federal Reserve Chair Jerome Powell has left the door open to future hikes.

Last month at the FOMC’s annual conference in Jackson Hole, Wyoming, Powell stressed that the Fed’s job is to bring inflation down to a 2% goal.

Esther D’Amico is Kiplinger’s senior news editor. A long-time antitrust and congressional affairs journalist, Esther has covered a range of beats including infrastructure, climate change and the industrial chemicals sector. She previously served as chief correspondent for a financial news service where she chronicled debates in and out of Congress, the Department of Justice, the Federal Trade Commission and the Commerce Department with a particular focus on large mergers and acquisitions. She holds a bachelor’s degree in journalism and in English.