“Fed Keeps Rates Low – A DOORWAY to Further Increases?

The Federal Reserve opted to keep its benchmark interest rate on hold for the fourth consecutive meeting on Wednesday, signaling that the central bank may be content to wait and see if the current economy continues to recover before it implements any further rate hikes. As financial markets, economists, and investors have become increasingly jittery about the potential for future rate hikes, this announcement provided some welcome relief. In its statement released after the meeting, the Federal Reserve reiterated its view that the current economy remains a solid foundation for further growth. The Fed noted that job gains have been solid, inflation remains stable, and the economy as a whole is going strong. However, they also cautioned that there is still some room for improvement in terms of wage growth, productivity, and global economic risks. The decision to keep rates on hold indicates that the central bank is willing to take a wait-and-see approach in order to better assess the strength of this recovery before undertaking any further tightening of monetary policy. Moreover, the announcement also left the door open for future rate hikes. The statement specifically noted that if the recent economic data support further rate hikes, the Fed “will continue to monitor incoming information and will act as appropriate to sustain the expansion, with a strong labor market and inflation near our 2 percent longer-run objective.” This news will no doubt be welcomed by many, as financial markets have been bracing themselves for another round of rate hikes. With the Fed opting to stay on the sidelines, financial markets can breathe a little easier for the time being. Nevertheless, with the economy continuing to recover, there is a good chance that the Fed could move to raise rates in the future if the data warrants it.