The Federal Reserve has put a hold on rate hikes. They’ve maintained the benchmark lending rate at a 22-year high. They aim to watch more data to gauge previous rate hike impacts on the economy. Since March, the Fed has increased interest rates 11 times and paused twice. The most recent projections show officials believe the key lending rate could peak at 5.63-5.87% this year.
This implies another possible rate hike by year-end. Economic growth and the unemployment rate estimates have been revised upwards and downwards, respectively. In a surprise move, officials foresee fewer rate cuts in 2024 than earlier projected. This confirms investors’ concerns that interest rates could stay high for a prolonged period.
Fed officials shared their optimism about a soft landing scenario. However, they’ll also have to manage several uncertainties in the coming months. These include the reinstatement of student loan repayments, rising energy costs, and the lagged effects of previous rate hikes. Amid these circumstance, markets reacted negatively to Powell’s remarks on the soft landing possibility.
Lastly, the Fed also adjusted its projections of economic growth this year and next. GDP growth for this year was estimated at 2.1%, up from June’s 1% prediction. Growth projections for 2024 were also revised upwards. Slower growth is widely expected, rather than a slump. Energy markets’ recent volatility could pose another risk, as production cuts and supply disruptions have led to rising gas prices.