The Federal Reserve announced today that it will keep interest rates the same for the second time since beginning its current rate hike cycle aimed at taming inflation last March. The Fed projected that rates will remain higher over the next two years than previously expected, providing some unwelcome news for investors who have been hoping for rates to come down sooner rather than later.
Since last March, the Federal reserve raised the federal funds rate 11 times in an effort to control inflation by slowing the economy, bringing it up from the near-zero levels they hovered at beginning in early 2020. The federal funds rate only technically determines the interest rate at which banks can lend to each other but heavily influences the borrowing costs across the economy. The rise in rates came as the Fed tried to tackle high inflation. The consumer price index (a key economic growth indicator) peaked at 9.1% last June but came in at a more modest 3.7% last month, still well above the Fed’s 2% long-term target. The central bank’s battle on inflation seems to be working but remains far from over.
The Federal Reserve has hinted on one more .25% interest rate hike this year peaking in the 5.50%-5.75% range before starting to lower rates. The updated projections see the Fed funds target rate coming down to 5.1% by the end of next year, and to 3.9% by the end of 2025.
According to analysts, the economic projections released today (Wednesday, September 20) indicate “the Fed is more confident that they can pull off a soft landing and that the economy can withstand higher rates for longer.