US Fed keeps interest rates unchanged at 5.5%

September 20, 2023 (MLN): US Federal Reserve decided to leave interest rates unchanged at 5.25%-5.5%.

To note, interest rates are at their highest level in 22 years.

This marks the second time the Fed has not raised rates in the last 13 meetings.

In the last meeting, the Fed decided to raise the rates by 25 basis points.

Recent indicators suggest that economic activity has been expanding at a solid pace, FOMC statement issued reads.

Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The US banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.

The extent of these effects remains uncertain.

The committee remains highly attentive to inflation risks, it added.

The committee will continue to assess additional information and its implications for monetary policy.

In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

In addition, the committee will continue reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities, as described in its previously announced plans.

In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook.

The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals.

The committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

To recall, the US consumer price index (CPI) for the month of August 2023 surged by 3.7% YoY, compared to 3.2% YoY in July.

While on a sequential basis, US CPI saw an increased of 0.6% MoM, which was the highest MoM increase since June of last year when the CPI peaked at 9.1% YoY and 1.19% MoM.

Moreover, Core CPI increased by 4.3% YoY as compared to an increase of 4.7% in the previous month, and by 0.3% MoM as compared to an increase of 0.2% in July.

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