Fed holds US interest rates steady at 3.75%-4% as chair flags high inflation
The US Federal Reserve left its benchmark rate unchanged, with two officials voting for a rise, and chair Warsh saying more economic data is needed before December's meeting.
At a glance
- The US Federal Reserve held its benchmark interest rate steady at 3.75%-4%, citing high inflation and a resilient economy.
- Two of the 12 committee members, Lisa Cook and Beth Hammack, voted to raise rates to 4%-4.25%.
- Fed chair Warsh said more economic data is needed before the next policy decision; the committee meets on 8-9 December.
The US Federal Reserve has left its benchmark interest rate unchanged at 3.75%-4% this month, saying that while inflation remains high it wants to gather more information before making another decision on rates. The Fed's rate-setting committee also noted that, despite uncertainty, the US economy remained resilient.
The decision was not unanimous. Ten of the 12 committee members voted to keep rates where they are, while Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to raise them to 4%-4.25%. The committee next meets on 8-9 December.
What the Fed said
Fed chair Warsh acknowledged that inflation remained too high, but pointed to other signs — such as tightening credit conditions — that the economy was moving in the right direction.
He said there is plenty more economic data to come before the committee's next meeting, which should paint a more detailed picture of the state of the economy. At that point, he said, "we'll be, I think, better positioned to determine the right policy decision and the stance of policy."
The Fed had signalled last month that there could be one more rate rise this year, but Warsh would not be drawn out on where rates might go in six weeks' time. "A lot of things can happen, so I'm not going to be able to share with you my musings," he said.
How Fed rates affect households
The Fed uses interest rate changes to try to keep inflation — the rate at which prices change — at 2% a year and to keep the job market stable.
When inflation is too high, the Fed tends to raise rates. This usually means higher rates from banks and other lenders, which in turn affects spending and saving decisions. Someone refinancing a mortgage or buying a property for the first time could face higher mortgage rates, and credit card or car loan rates could rise too. Savings rates would also be higher, however.
Higher rates encourage people and businesses to save more, spend less and invest less. It can also encourage companies to hire fewer people or slow the pace of pay rises. All of this tends to reduce demand and slow inflation.
When inflation is low, or if the Fed believes the economy needs a boost, it cuts rates, with the aim of encouraging more spending and less saving.
Leaving rates unchanged means rates on new mortgages or business loans are also less likely to change. It also means interest rates on cash savings are unlikely to rise.
Source: BBC Business.
Questions and answers
- Did the Fed raise interest rates this month?
- No. The Fed held its benchmark rate steady at 3.75%-4%. Ten of the 12 committee members voted to keep rates unchanged, while two voted to increase them.
- When is the Fed's next meeting?
- The committee's next meeting will be held over 8-9 December, when it will again decide whether to change interest rates.
- How do Fed interest rates affect mortgages and savings?
- Leaving rates unchanged means rates on new mortgages and business loans are less likely to change, and interest rates on cash savings are unlikely to rise.
