Tipsheet

Federal Reserve Hits 'Pause' on Interest Rate Hikes

Spencer Brown
Spencer Brown  |  June 14, 2023 3:15 PM

For the first time in more than a year, the Federal Reserve's Open Market Committee announced at its meeting on Wednesday that the Fed would not be raising interest rates even as it admitted that "inflation remains elevated."

Instead of another rate hike, the FOMC said it "decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent" in order to allow the "Committee to assess additional information and its implications for monetary policy."

According to the Fed's release on the latest decision, the FOMC "would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals." The Fed, apparently, didn't see any "risks" emerging in its preferred inflation gauge — the PCE price index — that recently saw yet another "disastrous" print and showed anything but movement in the direction of the Fed's goal of two percent inflation.

Evidently that wasn't enough for the Fed to keep its foot on the gas and announce another interest rate hike on Wednesday after doing so for the preceding 15 months. The FOMC said that its assessment for Wednesday's decision to pause rate hikes — and for future decisions — "take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

The Fed, seemingly unconvinced that its interest rates so far had turned the tide on inflation, left the door open to the (very likely) possibility that "additional policy firming" — read: more interest rate hikes — "may be appropriate to return inflation to 2 percent over time." 

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According to Fed forecasts also released on Wednesday, 12 out of the 18 central bank policymakers predicted there would be at least two additional interest rate increases while four projected one increase, and two forecast that rates would remain at the current level.

Despite inflation remaining higher than it was when Biden took office and at a level that means Americans have seen a cut to their real wages for some 24 straight months, the Fed stated that "economic activity has continued to expand at a modest pace," pointed to "robust" job gains in recent months, and noted the unemployment rate "has remained low," though the most recent jobs report showed the rate increasing. 

So, why take a break from the interest rate hikes that are intended to wrangle inflation now? Here's what Fed Chairman Jerome Powell had to say on Wednesday:

If, as it appears, Powell and the Fed got spooked too early and will need to enact more interest rate increases in the months ahead to bring inflation down closer to its two percent goal, then that means the Fed has only managed to extend the economic suffering of Americans.