The Federal Reserve decided this week to leave interest rates unchanged, despite recent news showing higher inflation. The decision comes as American consumers continue to struggle with the pressure of higher lending rates and prices.
The central bank said that it would leave rates around 5.5%, which represents the highest rates since 2001. Despite the decision, the Fed said that it could still increase rates by the end of 2023 due to “elevated” inflation.
The Fed said that “additional policy firming” may be needed for the inflation rate to fall to the desired 2% range.
The central bank said in a statement that it would “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments.”
Inflation rates have increased considerably over the last two years amid the highest inflation in 40 years. The federal funds rate hovered around effectively zero during the pandemic.
However, significant financial stimulus from the Federal Reserve and Congress helped to drive the increasing inflation rate, which peaked at around 9% last year.
BREAKING: The Federal Reserve kept its key short-term interest rate unchanged for a second straight time but left the door open to further rate hikes. https://t.co/hJFdcUGEKe
— The Associated Press (@AP) November 1, 2023
There have been eleven rate increases over the last several years, which also makes borrowing money more difficult. Current 30-year mortgage rates are now about 8%, more than double that of some rates available during the pandemic.
There may also be increasing inflationary pressure due to the higher-thane-expected economic growth news announced last week. The 4.9% annualized increase in gross domestic product (GDP) may have the added effect of causing another wave of inflation.
In September, the Consumer Price Index (CPI) increased by 3.7% on an annual basis, nearly double the Fed’s target.
Overall prices increased by 0.4% in September alone after a 0.6% increase in August. According to the U.S. Bureau of Labor Statistics, much of the increase in prices was driven by higher housing costs. Higher gasoline prices also helped to increase the strain on American consumers.
Overall food prices have increased by almost 4% on an annual basis over the last twelve months.