
Federal Reserve Expected to Maintain Key Interest Rate Amid Economic Pressure
In the midst of a resilient but challenged U.S. economy, Federal Reserve Chair Jerome Powell is expected to keep the key interest rate unchanged. This decision is influenced by concerns surrounding rising interest rates, global disruptions, and cautious investor sentiment.
The U.S. has experienced strong consumer spending, which led to a surge in economic growth during the third quarter. However, inflation remains at a four-decade high, leading Powell to aim for a decrease in inflation before slowing the Fed’s approach toward its 2% target.
Volatile financial markets have driven long-term rates on U.S. Treasurys upward, resulted in falling stock prices, and increased corporate borrowing costs. The Fed views these developments as potential catalysts for an economic slowdown, which could help reduce inflation without the need for additional rate hikes.
Since March 2022, the Fed has raised its key rate from nearly zero to about 5.4%, marking a notable 22-year high. This measure was intended to combat inflation, which has consequently contributed to rising costs for mortgages, auto loans, and credit cards.
Inflation has since decreased from its peak of 9.1% in June of the previous year to 3.7%. Concurrently, Treasury yields have surged to a 16-year high, with the yield on the 10-year Treasury note pushing the average 30-year fixed mortgage rate near 8%. This increase has impacted business borrowing and tightened financial conditions equivalent to three or four quarter-point rate hikes.