15-6-2023 (WASHINGTON) The Federal Reserve announced on Wednesday that it would maintain unchanged interest rates, while reiterating its determination to combat persistent inflationary pressures.
Having raised interest rates consistently over the past ten meetings, policymakers at the Fed chose to keep the benchmark rate steady at a range of 5 to 5.25%. They emphasized the possibility of further rate hikes if necessary to rein in prices.
“The committee is fully united in the objective of bringing inflation down to 2%, and we will do whatever it takes to achieve that goal,” stated Fed chairman Jerome Powell during a press briefing. “We recognize that allowing inflation to take hold in the US economy is something we cannot allow for the benefit of present and future workers, families, and businesses.”
The central bank’s decision to forgo an eleventh consecutive rate hike came after the Labor Department reported mixed progress in restoring price stability. Consumer prices in May rose by 4% compared to the previous year, marking the smallest annual increase since March 2021.
The decline in inflation last month was primarily attributed to falling gasoline prices, which are known for their volatility. Excluding the volatile energy and food prices, inflation still stands at 5.3%, more than two-and-a-half times the Fed’s target of 2%. “While things are moving in the right direction and appear encouraging,” says Kathy Bostjancic, chief economist at Nationwide, “we still observe some stubbornness in the ‘core’ consumer price index.”
Powell acknowledged that he and others have consistently underestimated the endurance of inflation over the past two years. “Forecasters, including those at the Fed, have consistently believed that inflation was about to decline and have been proven wrong,” Powell admitted.
He emphasized that they would not make the mistake of prematurely easing their efforts to curb inflation.
On average, Fed policymakers now anticipate that rates will need to rise by approximately half a percentage point to reach 5.6% by the end of this year. In March, officials at the Fed believed that the current rate would be sufficient to bring inflation under control.
Borrowing costs have already experienced the most rapid increase in decades. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage is 6.71%, while the average interest rate on credit cards exceeds 20%.
This poses a challenge for nearly half of credit card users who carry a balance, as credit card debt has surged amid the struggle to keep up with rising prices.
“For millions of Americans, their paychecks no longer cover household expenses due to inflation,” warns Greg McBride, chief financial analyst at Bankrate. “Budgets are stretched, and we’ve seen a decrease in savings and an increase in credit card debt.” On the other hand, those fortunate enough to have savings in the bank can finally earn interest rates that outpace inflation.
“Savers are now experiencing the best returns in 15 years, provided they look in the right places,” McBride explains.
He advises individuals to shop around, as internet banks, small community banks, and credit unions often offer the most competitive interest rates.
“While many banks remain conservative in their savings account and CD payouts, the top-yielding accounts exceed 5%, and that’s where individuals should consider placing their money,” McBride advises.
