Fed Keeps Rates Steady, Toughens Policy Stance As ‘Soft Landing’ Hopes Grow

Washington, D.C – The U.S. Federal Reserve held interest rates steady on Wednesday but stiffened a hawkish monetary policy stance that its officials increasingly believe can succeed in lowering inflation without wrecking the economy or leading to large job losses.

The Fed’s benchmark overnight interest rate may still be lifted one more time this year to a peak 5.50%-5.75% range, according to updated quarterly projections released by the U.S. central bank, and rates kept significantly tighter through 2024 than previously expected.

“People hate inflation. Hate it,” Fed Chair Jerome Powell said in a press conference after the end of a two-day policy meeting at which central bank officials held the benchmark overnight interest rate in the current 5.25%-5.50% range, but sketched a stricter policy path moving forward in an inflation fight they now see lasting into 2026.

But a “solid” economy with still “strong” job growth, Powell said, will allow the central bank to keep that additional pressure on financial conditions through 2025 with much less of a cost to the economy and labor market than in previous U.S. inflation battles.

Indeed, monetary policy is expected to remain slightly restrictive into 2026 while the economy continues to largely grow at its estimated trend level of around 1.8%.

Even as inflation declines for the rest of 2023 and in coming years, the Fed anticipates only modest initial reductions to its policy rate. That means the expected half percentage point of rate cuts in 2024 would have the net effect of raising the inflation-adjusted “real” rate.

As of June, Fed officials had expected to cut rates by a full percentage point next year.

While Powell said the Fed was “in a position to proceed carefully” with future policy moves, he also made clear the jury was, to some degree, still out on the central bank’s fight to contain the worst outbreak of inflation in 40 years.

“We want to see convincing evidence really, that we have reached the appropriate level” of interest rates to return inflation to the Fed’s 2% target, a judgment its policymakers have not yet made, Powell told reporters.

Inflation by some measures remains more than double the Fed’s desired level, though Powell said the pace appeared to be in decline across several key parts of the economy.

Bond yields jumped after the release of the latest Fed projections and policy statement, with the 2-year Treasury note at a roughly 17-year high near 5.2%. Major U.S. stock indices fell.

Continue reading at www.reuters.com

Keep your finger on the fishing industry pulse

The Definititive News Source of the Fishing & Marine Industry