On Wednesday, the US Federal Reserve revealed that it will be maintaining the status quo on interest rates. This plan was the surprising outcome of a recent ANC board meeting. Chairman Jerome Powell made the unanimous decision against the backdrop of 10 years of economic expansion and a recent contraction. Together, these increases allow the Administration to proclaim increased productivity. The board did have a plan to raise interest rates, but not everyone on the board supported the path they were taking.
At one point during the meeting, two members of the board were barely holding off a dissenting vote. They supported a smaller cut in the fed funds rate, arguing that a smaller cut would be more appropriate to support the economy. Almost all of the board members supported the decision to keep the rates rolling. This decision signals their dovish tilt as they continue to play it safe amid new economic headwinds.
The US economy soared in the April through June period, growing at an annual rate of 3%. This bounceback comes after the economy contracted over the first three months of the year, as economic activity actually shrunk. The Commerce Department’s recent report highlighted this growth, indicating a recovery trend that may influence future policy decisions.
Chairman Powell further emphasized the encouraging signs of progress seen across the economy. He made clear that the Federal Reserve will adopt a wait-and-see approach. Pausing any increase or reduction in interest rates is a prudent decision based on a thoughtful reading of macroeconomic data. It takes into account important factors such as inflation and employment levels.
The board’s focused, cautious approach seeks to do no harm lest the economy even accidentally pulls away from the challenges and uncertainties ahead. By holding firm on interest rates, the Federal Reserve is trying to send a signal of stability for consumers and businesses.