The U.S. Federal Reserve announced its decision to keep interest rates unchanged in its final meeting of the year.
This decision comes after a series of rate hikes that began in March 2022.
The benchmark interest rate set by the Federal Reserve has remained steady at a range of 5.25% to 5.50% since late July.
This marks the third consecutive meeting in which rates have remained unchanged. The decision to maintain these rates comes in the wake of a rapid pace of rate hikes initiated by the Fed last year, in response to elevated inflation levels.
When the Federal Reserve began raising rates in response to rising inflation levels, annual inflation stood at approximately 8%. However, by June, inflation had reached a peak of 9.1%. As of November, inflation had eased to a more manageable level of 3.1%. Despite this improvement, the Fed acknowledges that inflation remains elevated.
Read: Inflation Refuses To Go Away As Prices Stay Elevated
The Federal Reserve stated in a recent statement, “Inflation has eased over the past year but remains elevated. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”
This indicates that there are concerns about the impact of tighter financial conditions on various aspects of the economy.
Market experts and investors are increasingly convinced that the Federal Reserve is unlikely to raise interest rates further in the near future. In a research note published by Bank of America economists, they expressed their belief that the hiking cycle is done, although the committee retains the right to hike if necessary.
According to CME Group’s FedWatch Tool, based on futures market data, there is a probability of over 90% that the Fed will leave rates unchanged at its next meeting in late January. Looking ahead, market participants believe there is a strong chance that the Fed will begin cutting rates, with almost no chance of further rate hikes.
The market’s anticipation of potential rate cuts has led to a decline in long-term Treasury bond yields and a decrease in interest rates on mortgages and other loans. The yield on the 10-year Treasury note, for example, peaked at nearly 5% in mid-October but has since dropped to about 4.09%. This shift in rates has impacted borrowing costs for consumers and businesses alike.
Freddie Mac, a government-backed lender, reports that the interest rate on a 30-year fixed-rate mortgage has decreased to about 7% as of Wednesday. This comes after reaching a 23-year high of 8% in early October. The decline in interest rates is expected to stimulate borrowing and potentially boost economic activity.
Read: Pennsylvania Sen. Bob Casey Blames Corporations For Inflation
Bank of America’s team of economists predicts that members of the Federal Open Market Committee will also forecast lower interest rates in 2024. Referring to the Fed’s main interest rate, the Federal Funds Rate, they suggest that the median member may project a 4Q 2024 funds rate of 4.6%, compared to 5.1% in September.
This projection implies the possibility of three cuts of 0.25% each if the economy aligns with the Fed’s baseline expectations.
The Federal Reserve’s decision to keep interest rates unchanged in its final meeting of the year reflects a cautious approach towards addressing inflation and economic conditions.
Market sentiment suggests that further rate hikes are unlikely in the near future, with the possibility of rate cuts gaining traction.
The impact of these decisions on the economy and consumers remains to be seen. As we move forward, it is essential to monitor economic indicators and the Federal Reserve’s stance for a comprehensive understanding of the interest rate landscape and its implications.
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