The US Federal Reserve (Fed) kept its policy rate unchanged within expectations, keeping it unchanged at a 22-year high of 5.25-5.50 percent.
The Fed said in a statement that the decision to keep the interest rate unchanged was unanimous.
Recent indicators suggest that the strong pace of growth in economic activity slowed in the third quarter, the statement said.
It was noted in the statement that employment gains have slowed since the beginning of the year but remain strong, while the unemployment rate remains low.
Inflation slowed throughout the year but remained high, the statement said.
Emphasizing that the Federal Open Market Committee (FOMC) targets maximum employment and 2 percent inflation in the long run, it was reported that it was decided to keep the federal funds rate in the range of 5.25-5.50 percent to support these targets.
No change in interest rates in 3 consecutive meetings
The Fed, which completed its asset purchase operation last year in the face of high inflation in the US and started raising interest rates, has made a total of 11 rate hikes since March 2022 and raised the interest rate by a total of 525 basis points.
With these increases, the bank’s policy rate had risen to 5.25-5.50 percent, the highest level since 2001.
With its latest decision, the Fed left its policy rate unchanged at the current range for the third consecutive meeting.
Inflation in the US was recorded as 3.1 percent on an annual basis in November, after hitting the highest level since 1981 with 9 percent on an annual basis in June last year.
While the US Federal Reserve (Fed) signaled that interest rate cuts may start next year, the bank’s forecasts revealed the possibility of a total of 75 basis points of interest rate cuts next year.
In a statement released after the two-day Federal Open Market Committee (FOMC) meeting, the Fed said that the Committee will take into account the cumulative tightening in monetary policy, lags in the impact of monetary policy on economic activity and inflation, and economic and financial developments in determining the size of “any” additional policy tightening that may be appropriate to reduce inflation to 2 percent over time.
The Fed, which also announced its forecasts for the economy, lowered its forecast for the federal funds rate for the end of this year from 5.6 percent to 5.4 percent.
The Fed publishes a “projection” table of its forecasts for the economy every two meetings throughout the year.
Accordingly, the Fed’s forecast for the federal funds rate for 2024 was reduced from 5.1 percent to 4.6 percent, and from 3.9 percent to 3.6 percent for 2025. The Fed’s interest rate forecast for 2026 was kept at 2.9 percent. The long-term average interest rate expectation was also kept at 2.5 percent.
These forecasts indicate that the Fed may cut interest rates by a total of 75 basis points next year.
The Bank’s inflation forecasts were cut from 3.3 percent to 2.8 percent for this year, from 2.5 percent to 2.4 percent for 2024 and from 2.2 percent to 2.1 percent for 2025. The inflation forecast was set at 2 percent for 2026.
Forecasts for core inflation, which excludes volatile energy and food prices, were also revised downward, while forecasts for core inflation were reduced from 3.7 percent to 3.2 percent for this year, from 2.6 percent to 2.4 percent for 2024 and from 2.3 percent to 2.2 percent for 2025. The Fed’s core inflation forecast for 2026 remained unchanged at 2 percent.
The growth forecast for the US economy was raised from 2.1 percent to 2.6 percent for this year, while it was reduced from 1.5 percent to 1.4 percent for next year. While the growth forecast was left at 1.8 percent for 2025, it was increased from 1.8 percent to 1.9 percent for 2026.
Forecasts for the unemployment rate were kept at 3.8 percent for this year, 4.1 percent for next year and 4.1 percent for 2025. The unemployment rate forecast for 2026 was raised from 4 percent to 4.1 percent.
Powell: Policy rate near peak
US Federal Reserve (Fed) Chairman Jerome Powell stated that the bank has probably completed its monetary policy tightening but is ready to tighten further if needed.
Powell held a press conference after the Fed kept its policy rate unchanged at a 22-year high of 5.25-5.50 percent, in line with expectations.
Stating that inflation has declined from its highest levels and that this has been achieved without a significant increase in unemployment, Powell said that inflation is still very high, the ongoing process of reducing it is not guaranteed and the course going forward is uncertain.
Pointing out that the steps they have taken have moved the policy rate into a very restrictive zone, Powell noted that tight monetary policy has put downward pressure on economic activity and inflation and that the effects of tightening are probably not yet fully felt.
Fed officials don’t want to take the possibility of a rate hike off the table
Stating that they welcome the low inflation data in recent months, Powell emphasized that more evidence will need to be seen to build confidence that inflation is moving sustainably towards the target.
Powell stated that the process of reducing inflation to 2 percent is expected to take some time and continued as follows:
“While we believe our policy rate is likely at or near its peak in the tightening cycle, the economy has surprised forecasts in many ways since the pandemic and continued progress towards our 2 percent inflation target is not guaranteed. We stand ready to tighten policy further if the need arises. We are committed to achieving a sufficiently restrictive monetary policy stance to bring inflation down to 2 percent sustainably over time and to keep policy restrictive until we are confident that inflation is heading towards that target.”
Referring to the evaluations of the Federal Open Market Committee (FOMC) members regarding the course of the interest rate, Powell said, “Although the authorities do not find it appropriate to raise interest rates further, they do not want to remove this possibility from the table.”
“It is too early to declare victory”
Powell pointed out that despite the resilience of the US economy this year, there is always the possibility of a recession, “There is little basis for thinking that the economy is currently in recession. I think there is always the possibility of a recession next year.”
Fed Chairman Powell noted that it was too early to declare victory.
Stating that the Committee discussed interest rate cuts at this meeting, Powell stated that the possibility of a rate hike was not ruled out if the data required it.