Fed seems inclined to leave interest rates unchanged

Since the Federal Reserve met for the last time in July, the economy has been going in the direction its officials wanted: The inflation has been slowing—although not as much as many Americans would like—economic growth is on track and the job market is cooling.

When they meet again this week, officials will most likely decide they can wait to see if the trend continues. Therefore, it is almost certain that they will not modify the reference interest rate when the meeting concludes on Wednesday.

The decline in inflation suggests the US central bank is nearing the peak of the series of rate hikes it unleashed in March of last year. The institution has raised rates at its fastest pace in four decades, making credit more expensive for businesses and individuals.

For investors and analysts, the question is what comes next. Some clues could be given in the rate projections that the bank releases every quarter and in a press conference with the president of the institution, Jerome Powell.

Another rate hike this year is likely to remain on the table, with the Fed forecasting fewer rate cuts next year than it forecast in June. This will underline the bank’s commitment to keep rates high well into next year in order to bring inflation back to its target of 2%.

The persistence of inflationary pressures was evident in two government reports issued last week, adding some uncertainty to the projections. Claudia Sahm, a former economist at the bank, said she believes that a “soft landing” —in which inflation can be tamed without causing a recession—is still possible. But at the same time he warned that inflation could remain higher than the bank estimates. Or, he suggested, the cumulative effect of the 11 interest rate increases could push the economy toward a recession.

“We are at a point where the situation could go in several directions”, Sahm highlighted. Federal Reserve officials “They will react as circumstances warrant.”

Source: AP