On Wednesday, the Federal Reserve confirmed that it will continue its pause on increasing interest rates. That announcement had been expected by most analysts and will see those rates maintained at between 5.25% and 5.5%. The continued pause by the Federal Open Market Committee comes on the heels of solid economic growth and employment news.
No more interest rate increases on the horizon?
Some observers have started to suggest that the Fed may be done with rate hikes. According to Chairman Jerome Powell, however, the Federal Reserve is not ready to assume that they’ve beaten inflation. The current rate of price increases is still well above the Fed’s target rate of 2%. Moreover, as Powell noted:
“A few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. The process of getting inflation sustainably down to 2% has a long way to go.”
Powell also this week reiterated his belief that the fight against inflation still requires some softening in the economy. According to him, Federal Reserve officials are still looking to see reduced growth and a slower labor market. Powell has repeatedly suggested that price stability will be difficult to achieve without that weakening.
Nothing off the table
Meanwhile, the Fed Chair made it clear that there are no current plans to cut those rates. In fact, he has confirmed that the central bank has not even discussed any reversal of the interest rate hikes. “We’re still very focused on the first question, which is ‘have we achieved a stance of monetary policy that’s sufficiently restrictive to bring inflation down to 2% over time, sustainably?’ That is the question we’re focusing on.”
Notably, the stock market rallied as some traders apparently decided that the danger of further rate increases has receded. However, Powell made it clear that future hikes are still on the table if rising prices continue to plague Americans. Moreover, he made it clear that the Fed will have no difficulty increasing interest rates again, even if it decides to continue the pause next month.
