WASHINGTON–As most had expected, the Federal Reserve’s Open Market Committee has adjourned its September meeting by opting to leave rates untouched.
As a result, the target for the federal funds rate remains at 5.25% and 5.50%.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated,” the Fed said in announcing its decision. “The U.S. 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.”
2% Remains Target
As it typically notes, the FOMC seeks to achieve maximum employment and inflation at the rate of 2% over the longer run, and will “continue to assess additional information and its implications for monetary policy.”
One More Rate Hike?
"This decision suggests a positive outlook among committee members regarding the trajectory of inflation, despite some acceleration within headline numbers due to rising energy prices," said NAFCU Economist Noah Yosif. "These projections reflect waning recessionary concerns, as well as the committee's preference for a higher-for-longer approach to counter remaining inflationary concerns rather than additional hikes. The FOMC retained one additional rate hike for 2023 in its forecast, which keeps the option on the table and prevents markets from becoming overly optimistic. But NAFCU anticipates no further hikes in this cycle, with the next rate cut arriving around the middle of next year."
'Best Course of Action--For Now'
“Previously, the Fed had seemingly signaled a commitment to being aggressive, potentially even again raising interest rates multiple times before the end of this year to continue efforts to drive down inflation," said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. "While they still very well may follow through with that before the end of this year, this week’s announcement indicates that the Fed may believe that the best course of action, for now, is to continue monitoring the economy, and the effects of previous hikes, to determine if and when additional rate hikes are necessary.
"The decision not to raise rates at present will likely have impacts across the credit markets," Raneri continued. "In the mortgage market, for instance, consumers who have been holding off may begin to be motivated by the announcement to consider making the home purchase they have been waiting on.
"Consumers who have credit cards will also likely see some short-term benefits by this announcement. This is because when the Fed announces an interest rate increase, credit card interest rates typically follow shortly thereafter, which may result in larger minimum monthly payments for credit card holders. While the decision not to raise interest rates this time round mitigates that for now, more interest rate increases may be on the horizon. For that reason, it’s a good idea for consumers to continue to maintain balances that are in alignment with what they know they will be able to make payments on each month, and take into consideration the possibility of further interest rate increases and how those payments may change as a result.”
Voting for the monetary policy action were Jerome H. Powell, chair; John C. Williams, vice chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.