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| US holds interest rates steady in first since 2022 | US holds interest rates steady in first since 2022 |
| (32 minutes later) | |
| The US central bank has announced it will hold interest rates steady - the first time it has opted against a rise in more than a year. | The US central bank has announced it will hold interest rates steady - the first time it has opted against a rise in more than a year. |
| The Federal Reserve kept the target for its benchmark rate at 5%-5.25% saying it wanted time to assess the impact of rate hikes so far. | The Federal Reserve kept the target for its benchmark rate at 5%-5.25% saying it wanted time to assess the impact of rate hikes so far. |
| The bank has already raised rates 10 times since March 2022 as it battles to bring inflation under control. | The bank has already raised rates 10 times since March 2022 as it battles to bring inflation under control. |
| Bank forecasts show most officials expect rates to rise further. | Bank forecasts show most officials expect rates to rise further. |
| That would follow a path carved out by central banks in countries such as Australia and Canada, which recently announced rate hikes following a break, citing stubborn inflation pressures. | That would follow a path carved out by central banks in countries such as Australia and Canada, which recently announced rate hikes following a break, citing stubborn inflation pressures. |
| "A pause is not an end," said Diane Swonk, chief economist at KPMG in the US. "They don't want to let their guards down yet with regard to inflation." | "A pause is not an end," said Diane Swonk, chief economist at KPMG in the US. "They don't want to let their guards down yet with regard to inflation." |
| Inflation in the US has already cooled considerably since last year, when the war in Ukraine prompted a spike in food and energy costs. | Inflation in the US has already cooled considerably since last year, when the war in Ukraine prompted a spike in food and energy costs. |
| Consumer prices rose 4% in the 12 months to May, climbing just 0.1% from a month earlier, the Labor Department reported on Tuesday. | Consumer prices rose 4% in the 12 months to May, climbing just 0.1% from a month earlier, the Labor Department reported on Tuesday. |
| But that remains higher than the 2% rate the bank considers healthy. Prices for many items beyond food and energy continue to rise steadily. | But that remains higher than the 2% rate the bank considers healthy. Prices for many items beyond food and energy continue to rise steadily. |
| The Fed has lifted its benchmark rate from near zero to more than 5% in less than 18 months - the highest level since 2007 - to try to rein in the increases - a historic shift after more than a decade of unusually low rates. | The Fed has lifted its benchmark rate from near zero to more than 5% in less than 18 months - the highest level since 2007 - to try to rein in the increases - a historic shift after more than a decade of unusually low rates. |
| Federal Reserve Chairman Jerome Powell has said he wants to give time for the economy to adjust to the change, as it ripples out to the public in the form of higher costs for mortgages, business loans, credit cards and other borrowing. | Federal Reserve Chairman Jerome Powell has said he wants to give time for the economy to adjust to the change, as it ripples out to the public in the form of higher costs for mortgages, business loans, credit cards and other borrowing. |
| In theory, higher costs should reduce demand for borrowing for homes, business expansions and other activity, eventually cooling the economy and easing pressures pushing up prices. | In theory, higher costs should reduce demand for borrowing for homes, business expansions and other activity, eventually cooling the economy and easing pressures pushing up prices. |
| But despite pockets of pain, such as a sharp slide in home sales, the economy has held up better than many expected so far. | |
| Fed policymakers now expect the economy to grow 1% this year - stronger growth than anticipated in March, according to projections that accompanied the rate announcement. The unemployment rate is also forecast to be 4.1%, lower than previously estimated. | |
| The forecasts also show officials expect to make slower progress controlling inflation than they did in March. | |
| Most officials expect the Fed's key rate to stand above 5.5% at the end of the year and at least one person sees the rate climbing above 6%. | |
| The three major US indexes fell following the announcement. | |
| Charles Lieberman, chief investment officer at Advisors Capital Management, said inflation has not come down fast enough but the pause is a recognition of the risk that the Fed's sudden, sharp rise in rates to more than 5% could trigger an economic slowdown that would prompt millions of job losses. | |
| The bank is also trying to account for the impact of a string of recent bank failures, which could reduce lending further. | |
| "Five percentage points is just absolutely enormous .... So this is a big impact," said Mr Lieberman, who previously worked at the Federal Reserve Bank of New York. "It doesn't mean they're necessarily done." | |
| Ms Swonk said the public should not expect a return to lower rates anytime soon. | |
| She said the economy generally has become "much more inflation prone" due to factors such as increased geo-political tensions, a move to more regional supply chains, and extreme weather events upsetting food supplies and prices more frequently. | |
| "You're going to see a much more activist central bank policy with higher bouts of inflation and bouts of rate hikes than we saw from the world we left," she said. | |
| Related Topics | Related Topics |
| US economy | US economy |
| US Federal Reserve | US Federal Reserve |
| Inflation | Inflation |