The Federal Reserve decided Wednesday afternoon not to raise interest rates, marking a second straight instance it declined to raise rates.
The Federal Reserve kept the target range for the federal funds rate at 5.25% to 5.5%, which still marks a 22-year high. This has made the cost for borrowers quite high, with 30-year fixed mortgage rates exceeding 8%.
Federal Reserve Chair Jerome Powell has made it the Fed’s goal to get inflation to an annualized rate of 2%. As of September, the consumer price index, the leading measure of consumer inflation in the U.S., was 3.7%. The consumer price index has fluctuated in the 3%-4% range for much of 2023 after topping 9% in 2022.
“The U.S. banking system is sound and resilient,” the Federal Reserve said. “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”
Powell noted some measures of core inflation, which can show signs of whether the inflation rate is declining before consumer inflation rates change, have dropped below 3%. But Powell concedes the inflation rate still needs to come down.
“These shorter-term measures are often volatile,” Powell said in late October. “In any case, inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters. While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2%.”
Powell also has weighed the impact high interest rates have on the job market. Typically when rates go up, employment numbers dip. But despite a year of high interest rates, unemployment rates have remained under 4%. There were also 3 million more Americans employed in September 2023 compared to the year prior.
“In the labor market, strong job creation has met a welcome increase in the supply of workers, due to both higher participation and a rebound of immigration to pre-pandemic levels,” Powell said. “Many indicators suggest that, while conditions remain tight, the labor market is gradually cooling. Job openings have moved well down from their highs and are now only modestly above pre-pandemic levels.”