The US Federal Reserve (Fed) on Wednesday held interest rates unchanged, refraining from raising interest rates even though inflation has accelerated for the second month in a row.
The Federal Open Market Committee (FOMC), the committee of Fed officials responsible for setting interest rates, said on wednesday Banks’ standard borrowing costs will be maintained in the range of 5.25-5.5%. The Fed raised interest rates to that level (the highest level in 22 years) in July after pausing in June.
Investors and economists had widely expected central banks to keep interest rates on hold in September after months of declining job growth, rising unemployment and slowing economic growth around the world.
The Fed is trying to keep inflation in check by raising interest rates without raising borrowing costs enough to slow the economy into recession. It could take more than a year for the full effects of a rate hike to be felt, and Fed officials are wary of raising rates too soon.
The U.S. continues to add jobs at a steady rate, with the unemployment rate in August at 3.8%, just 0.3 percentage points above the 50-year low recorded before the pandemic. Inflation also rose in July and August, largely due to energy prices that are outside the Fed’s control.
Still, the Fed is taking a more cautious approach after raising interest rates rapidly since March 2022 and making the mistake of suppressing inflation for most of the past two years.
Whether the Fed succeeds could have profound political implications for both the 2024 presidential election and the Fed’s future.
President Biden and Democrats are trying to sell voters on his economic response as he seeks re-election as part of an effort to spur a rapid recovery from the coronavirus recession.
Many voters are already dissatisfied with Mr. Biden’s economic performance, as soaring inflation has overshadowed a record labor market recovery. A recession would make Mr. Biden’s re-election even more difficult and jeopardize Democratic control of the Senate.
Biden’s loss also jeopardizes Federal Reserve Chairman Jerome Powell’s mandate as head of the bank, potentially making him even more of an inflation hawk.
Powell, a Republican, has been heavily criticized for refusing to raise interest rates until the Fed was already on track to hit a 40-year high. Several leading Republican presidential candidates, including former President Trump, have vowed not to renominate for office when their terms expire in 2026.
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