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US interest rates held steady and economy grows
Confirmed
In Short: The Federal Reserve decided to keep interest rates unchanged, citing a resilient economy and ongoing inflation pressures.
The Federal Reserve announced on Wednesday that it would hold interest rates steady at 3.75%-4%, a decision that reflects the central bank's cautious approach to managing economic growth and inflation. Fed Chair Kevin Warsh stated, 'The overwhelming consensus, the overwhelming judgement, is that what we've done in this monetary medicine is starting to work some,' referring to the September rate rise.
The decision was unanimous among 10 of the 12 committee members, while Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to increase rates to 4%-4.25%. This marks the first time since the 2008 financial crisis that Fed rates have been as high as they are now, highlighting the current economic challenges.
The US economy showed stronger-than-expected growth, with the Bureau of Economic Analysis reporting a 3.4% annualized growth rate between July and September, exceeding economists' expectations of 3.2% and improving from the previous quarter's 2.2% growth. This growth, however, came alongside inflation running above the Fed's target.
Warsh acknowledged that inflation remains high but noted that tightening credit conditions and other signs indicate the economy is moving in the right direction. He emphasized the need for more data before making further decisions, adding, 'A lot of things can happen, so I'm not going to be able to share with you my musings.'
The Fed's decision to hold rates steady was made within a week of the midterm elections and after the central bank raised interest rates for the first time in three years at its September meeting. The Fed noted that while there was uncertainty, the US economy remained resilient, and more economic data is expected between now and the committee's next meeting.
Interest rates influence borrowing costs for individuals and businesses, affecting credit cards, mortgages, and business loans. They also determine the return on savings. The Fed's target range for the federal funds rate, which commercial banks use for overnight borrowing, is a key tool in managing the economy.
The decision to hold rates steady comes as global central banks are also opting to keep interest rates unchanged amid growing inflation worries stemming from energy costs. ECB President Christine Lagarde said the central bank remains on the 'middle path' after raising interest rates by 25 basis points earlier this month, arguing that the energy shock is too large to ignore but has not yet become deeply embedded.
While the Fed's decision reflects a cautious approach, it also signals that policymakers are closely monitoring economic data to determine the next steps. Warsh noted, 'we'll be, I think, better positioned to determine the right policy decision and the stance of policy.'
Background
The Federal Reserve is set to issue an interest rate decision on Wednesday amid growing concerns over inflation.
The Federal Reserve is set to decide on interest rates amid growing concerns over inflation, with major lenders in the UK withdrawing mortgage products below 5%.
What's confirmed
- The Federal Reserve announced on Wednesday that it would hold interest rates steady at 3.75%-4%, a decision that reflects the central bank's cautious approach to managing economic growth and inflation. Fed Chair Kevin Warsh stated, 'The overwhelming consensus, the overwhelming judgement, is that what we've done in this monetary medicine is starting to work some,' referring to the September rate rise.
- The decision was unanimous among 10 of the 12 committee members, while Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to increase rates to 4%-4.25%. This marks the first time since the 2008 financial crisis that Fed rates have been as high as they are now, highlighting the current economic challenges.
- The US economy showed stronger-than-expected growth, with the Bureau of Economic Analysis reporting a 3.4% annualized growth rate between July and September, exceeding economists' expectations of 3.2% and improving from the previous quarter's 2.2% growth. This growth, however, came alongside inflation running above the Fed's target.
- The Fed's decision to hold rates steady was made within a week of the midterm elections and after the central bank raised interest rates for the first time in three years at its September meeting. The Fed noted that while there was uncertainty, the US economy remained resilient, and more economic data is expected between now and the committee's next meeting.
- Interest rates influence borrowing costs for individuals and businesses, affecting credit cards, mortgages, and business loans. They also determine the return on savings. The Fed's target range for the federal funds rate, which commercial banks use for overnight borrowing, is a key tool in managing the economy.
- The decision to hold rates steady comes as global central banks are also opting to keep interest rates unchanged amid growing inflation worries stemming from energy costs. ECB President Christine Lagarde said the central bank remains on the 'middle path' after raising interest rates by 25 basis points earlier this month, arguing that the energy shock is too large to ignore but has not yet become deeply embedded.
What's still developing
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- “I want to have the freedom of speech, the freedom of expression, and the freedom to engage on matters that are not monetary policy matters,” Lagarde said at her regular press conference after the ECB left its key interest rates unchanged on Thursday.
- “Signals are pointing to broad inflationary pressure beyond one-off energy and tariff shocks,” said William Dickens, university distinguished professor emeritus of economics and public policy.
- South Africa-focussed investors were little moved by better-than-expected GDP figures published on Tuesday, with analysts saying the below 1% growth was reflective of a subdued economy that continues to face many structural challenges.
- First, she mentions that they should not put "too much emphasis" on the inflation numbers due tomorrow.