The Federal Open Market Committee (FOMC) of the Federal Reserve kept the United States’ basic interest rate unchanged in the range between 5.25% and 5.50% this Wednesday, in line with market consensus.
In the statement released alongside the decision, the FOMC mentioned that by maintaining the Fed Funds target rate unchanged in this afternoon’s decision, it will be able to assess additional information and potential developments for its monetary policy.
The FOMC also noted in the statement that when determining the extent of any further increase in the Fed Funds to bring American inflation back to the 2.0% annual target, it will take into account “the cumulative tightening of monetary policy, lags with which monetary policy affects economic activity and inflation, and economic and financial factors.”
The FOMC also mentioned that it will “continue to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities, as described in its previously announced plans.”
This was the second time the Fed kept interest rates unchanged since the beginning of this tightening cycle in March 2022. It is also the longest interest rate hike cycle since the 1980s when the Fed engineered a recession to control inflation in the United States.
Today’s decision by the FOMC was “unanimous.” Fed Chairman Jerome Powell will speak to the press around 2:30 pm. Around 2:05 pm, the major U.S. stock exchanges were trading without a clear direction.
FOMC Raises GDP Projection for This Year and Next
The Federal Reserve has raised its projection for the economic growth of the United States for this year and the next, following recent data indicating that the American economy has been expanding at a “solid” pace, according to the latest “Dot-Plot,” a quarterly report with central bank officials’ projections for the local economy.
In the report, the projection for Gross Domestic Product (GDP) was revised to 2.1% in 2023, up from the previous 1.0% projected in the June “Dot Plot.” The Fed also projected economic expansion for 2024 at 1.5%, up from 1.1%. The expectation for 2025 remained at 1.8%. The document also added a growth projection for 2026 at 1.8%.
Fed members also maintained the projection for the year-end level of interest rates at 5.6%, with no changes compared to June. This projection implies one more increase in the Fed Funds target rate by 25 basis points, to the range between 5.50% and 5.75%. The Federal Open Market Committee (FOMC) kept interest rates unchanged between 5.25% and 5.50% this afternoon.
For 2024, officials raised the median projection for the year-end level of interest rates to 5.1%, up from 4.6% in June. As for 2025, officials raised the projection for the year-end level of Fed Funds to 3.9%, up from 3.4%. For 2026, the median projections point to a decline in interest rates to 2.9%.
Regarding inflation, the projection for the Personal Consumption Expenditures (PCE) Price Index was raised to 3.3%, up from 3.2%. The estimate for 2024 remained at 2.5%. However, for 2025, Fed officials raised the projection to 2.2%, up from 2.1%. The 2026 projection points to inflation at 2.0%. This indicator is one of the key measures used by the Fed to assess price dynamics.
For the core PCE – which measures the price evolution of goods and services purchased by consumers for consumption purposes, excluding food and energy – the projection was reduced to 3.7%, down from 3.9%. For 2024, the estimates remained at 2.6%, while for 2025, officials raised the estimates to 2.3%, up from 2.2%. The 2026 projection for core PCE is 2.0%.
The Fed also projected the unemployment rate at 3.8% in 2023 and 4.1% for 2024, down from the projections of 4.1% and 4.5% for the two years, respectively, in the June report. The unemployment projection for 2025 was revised from 4.6% to 4.1%. For 2026, officials expect the unemployment rate to be 2.0%.