Uncertainty peaked, as one analyst described it, in the United States as the Federal Reserve kept options open. As anticipated, the Federal Open Market Committee chose to hold the federal funds rate steady this Wednesday. The target range remains 5.25% to 5.50%, the highest in more than two decades, a level first reached in July after 11 consecutive increases since March of the previous year.
The Fed maintains flexibility to maneuver, explaining that the decision was made under the leadership of Jerome Powell. While tackling inflation and monitoring the economy, the central bank seeks a path toward the 2% inflation goal without triggering a recession or stifling growth.
Third break in a row
This marks the third consecutive meeting where the Fed has paused after a wave of the most aggressive rate hikes seen in 40 years. The aim has been to curb price rises not witnessed in decades. Market participants still wonder when and how much easing might begin in 2024. The Fed remains ready to adjust if new developments require a higher price of money, and it continues to evaluate how tighter credit costs affect overall economic activity.
Inflation has slowed, and the labor market, while robust, has cooled somewhat. Yet it would be unwise to declare victory too soon. The central bank’s stance remains cautious, keeping doors open for adjustments if the economy or inflation behavior shifts unexpectedly.
Predictions
The last policy meeting of the year also includes quarterly projections, giving a view of where the Fed expects rates to land by the end of next year and into 2025, along with its outlook on inflation, unemployment, and growth. Market watchers focus on the dot plot and projections for inflation trends and the pace of economic expansion in the coming year.
As always, all attention goes to Powell’s press conference, typically held about thirty minutes after the policy announcement. He is expected to reaffirm that progress has been made, but the path remains long, with ongoing work ahead. In his recent remarks, he underscored that it is still early to gauge when monetary policy might ease further and that vigilance remains essential in the face of evolving economic dynamics.