Fed continues not to raise interest rates

The US Federal Reserve (Fed) kept its benchmark interest rate unchanged for the second consecutive time at its highest level in 22 years.

On November 1, as expected by the market, the Fed decided not to raise interest rates after a two-day policy meeting. The benchmark interest rate in the US is currently around 5.25-5.5% - the highest in 22 years. In September, the agency also did not raise interest rates.

In a statement after yesterday's meeting, the Fed noted that "economic activity grew at a solid pace in the third quarter." Despite the Fed raising interest rates 11 times since March 2022 to curb inflation, the US economy has not yet entered a recession. Not only that, GDP increased by 4.9% in the third quarter, mainly thanks to vibrant consumption.

This is one of the reasons why US government bond yields have increased recently, approaching the 5% mark. In a press conference after the meeting, Fed Chairman Jerome Powell said they will closely monitor this development, as it "could impact future interest rate decisions".

Fed Chairman Jerome Powell at a press conference on November 1. Photo: Reuters — Fed Chairman Jerome Powell at a press conference on November 1. Photo: *Reuters*

While inflation has cooled significantly from a 40-year high last summer, it remains above the Fed’s 2% target. A buoyant economy will make the Fed’s fight against inflation more difficult.

But some Fed officials are predicting a slowdown in U.S. growth as the effects of the rate hikes become more apparent. The strong gains seen in the third quarter are unlikely to be sustained. In the five years before the pandemic, the U.S. grew an average of just 2.6%, according to the Commerce Department.

Powell said they can only “fully restore price stability” if growth slows and the job market weakens. It’s unclear whether inflation can slow until those two numbers cool. Fed officials still expect a soft landing — one that tames inflation without causing a sharp rise in unemployment.

Economists also expect U.S. growth to lose steam due to pressure from rising yields, student debt repayments, dwindling pandemic savings and other hurdles Americans face. “We expect a weaker labor market, with companies freezing hiring or even cutting staff amid slowing wage growth,” said Lydia Boussour, an economist at EY-Parthenon.

Major US stock indexes jumped after the Fed's decision not to raise interest rates. At the end of the session on November 1, the S&P 500 increased by 1%, the DJIA increased by 0.67% and the Nasdaq Composite increased by 1.6%.

The market now expects the Fed to finish raising interest rates and start cutting them by the middle of next year. The agency has one more policy meeting this year in December.

Ha Thu (according to CNN)

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