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The Epoch Times
The Epoch Times
14 Jun 2023


NextImg:Federal Reserve Keeps Interest Rates Unchanged, Leaves Door Open to More Rate Hikes

For the first time in more than a year, the Federal Reserve has left interest rates unchanged, meeting economists’ expectations.

The benchmark federal funds rate held steady at a range of 5.00 and 5.25 percent, effectively ending the streak of ten consecutive rate hikes.

According to a statement from the Federal Open Market Committee (FOMC), officials say that the recent metrics show that economic activity is expanding “at a modest pace.”

“Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated,” the FOMC said.

“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.”

The Survey of Economic Projections (SEP) shows that officials anticipate the policy rate to rise to a median of 5.6 percent by the end of 2023.

Heading into the FOMC policy meeting, several Fed officials suggested that a rate pause would not indicate the end of the central bank’s tightening cycle. By hitting the pause button on a rate increase, policymakers could assess the economic data and determine the next course of action.

Meanwhile, policymakers were likely pleased by inflation growth rates continuing to slow.

The annual consumer price index (CPI) eased to 4 percent in May, down from 4.9 percent in April and below the consensus estimate of 4.1 percent. The monthly CPI rose just 0.1 percent.

Core inflation, which eliminates the volatile food and energy components, dipped slightly to 5.3 percent year-over-year. This was down from 5.5 percent in the previous and matched market expectations. Core inflation also climbed 0.4 percent month-over-month for the sixth straight month.

Producer prices also maintained their downward trend.

In May, the producer price index (PPI) fell 0.3 percent month-over-month and eased to 1.1 percent on an annualized basis, according to the Bureau of Labor Statistics (BLS). The core PPI rose 0.2 percent from April to May and slowed to 2.8 percent year-over-year.

Looking ahead, the Cleveland Fed Bank’s Inflation Nowcasting anticipates another sharp drop in the CPI. The model estimates that the annual inflation rate will slow to 3.2 percent, and the core CPI will slide to 5.1 percent. But the CPI and core CPI are expected to rise 0.4 percent month-over-month.

But with inflation showing signs of abating, is the Fed also achieving a soft landing?

According to the Atlanta Fed Bank’s GDPNow model estimate, the second-quarter GDP growth rate is projected to climb by 2.2 percent.