The US Federal Reserve on Wednesday maintained its key interest rate, hinting that long-run interest rates in the economy were higher than previously indicated.

CNBC

The US Federal Reserve on Wednesday maintained its key interest rate at 5.25-5.5%, hinting that long-run interest rates were higher than previously indicated.

Significantly shifting from their March stance, the Fed has indicated it expects to cut interest rates only once this year, holding on to the 23-year high borrowing costs.

www.ft.com

Shifting from its March stance, the Fed has indicated it expects to cut interest rates only once this year, holding on to the 23-year high borrowing costs.

While the May Consumer Price Index released on Wednesday was better than expected, a lowering of rates will only follow a further slide in inflation, the Fed said.

While the May Consumer Price Index (CPI) released on Wednesday was better than expected, a lowering of rates will only follow a further slide in inflation, the Fed said.

Fed Chair Jerome Powell said inflation had come down without the economy suffering and that "these dynamics can continue as long as they continue."

Reuters

Price rise has reportedly declined steeply from the level it hit two years ago, but the consumer price index hasn't fallen as much as policy wonks would have liked.

Guardian

Inflation has declined from the level its 9% level two years ago, but the CPI remains above the Fed's goal of 2%.

The Fed had hiked is benchmark rates 11 times between March 2022 and July 2023 to tame a pandemic-induced inflation spike to a 40-year high of 9.1%.

USA Today

The Fed hiked its benchmark rates 11 times between March 2022 and July 2023 to tame a pandemic-induced inflation spike to a 40-year high of 9.1%.

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By holding the rates high, the Fed risks increasing the government's debt costs significantly. This could crowd out important public investments in areas like infrastructure and education. If rates remain high for too long, the cost of borrowing will also remain high, creating severe long-term fiscal challenges. Policymakers must address the growing debt to ensure economic stability.

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Higher Interest Rates and the National Debt

The Federal Reserve is keeping interest rates steady despite easing inflation because this is is working as intended, and more progress is needed on the inflation front before needed before initiating an interest rate-lowering trend. The Fed has warned that cutting rates too soon could undermine the efforts to control price rise and weaken the economy. The recent buoyant job data for the US, it fears, might be overstated.

CNBC #851

Fed meeting live updates: All eyes on central bank's new rate forecast

There is a 5% chance that the Fed rate on Dec. 31, 2024, will be below 4%, according to the Metaculus prediction community.

Metaculus2

Fed Funds Rate Below 4%?

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Fed Holds Rates Steady, Hints at Only One Cut in 2024

Finance

United States of America

Economic conditions & trends

The Fed is keeping interest rates steady despite easing inflation because this is working as intended, and more progress is needed on the inflation front before initiating an interest rate-lowering trend. The Fed has warned that cutting rates too soon could undermine the efforts to control price rises and weaken the economy. Powell is right to stay the course.

Fed Holds Rates Steady

Fed Holds Rates Steady, Hints at Only One Cut in 2024

The Spin

Metaculus Prediction

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Fed Holds Rates Steady

Fed Holds Rates Steady, Hints at Only One Cut in 2024

The Spin

Metaculus Prediction

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