The US Federal Reserve decided to keep interest rates unchanged at their recent meeting. This means borrowing costs won’t rise for now, which might be a relief for some.
The U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%. However, the Fed reduced the pace of quantitative tightening to USD 60 billion from USD 95 billion earlier. At the press conference, Powell reiterated that monetary policy is “restrictive” and that an interest rate hike is “unlikely.”
But why did they hold rates steady?
Prices are still high
Inflation, the rise in the cost of goods and services, is still a concern for the Fed. While things have cooled down a bit, they haven’t reached the Fed’s target of 2% yet.
Holding the brakes
To keep inflation in check, the Fed wants to keep borrowing costs a bit higher for a while. This helps slow down the economy and bring prices down more gradually.
Future cuts on hold
The Fed won’t consider lowering interest rates until they’re confident inflation is under control. So, lower borrowing costs aren’t on the immediate horizon.
This decision was largely expected, so there wasn’t a major market shakeup. However, the Fed’s future actions will still play a big role in the overall health of the economy and financial markets.
Here’s what you can remember:
- Interest rates are staying put for now to fight inflation.
- Lower borrowing costs are unlikely until prices are under better control.
- The Fed’s decisions will continue to impact the economy and financial markets.
Impact on India
- The RBI (Reserve Bank of India) sets interest rates in India based on its own inflation and economic goals. While the Fed’s decision is a factor, it’s not the sole determinant.
- With India facing its own inflation concerns, the RBI might still hold off on cutting rates immediately.
Also take a look at this report from 360 ONE AMC on this Fed action.
