The Federal Reserve has announced that it will be temporarily pausing its recent pattern of rate hikes, in response to a slowdown in inflation. This pause will allow for the economy to adjust to the ongoing tighter monetary policy and provide time for the Reserve to assess the underlying strength of the U.S. economy. The Fed began raising interest rates a year ago, after a decade-long period of low rates following the Great Recession. The steady increase in borrowing costs was largely driven by a steady increase in inflation, as evidenced by aspects such as higher wages. However, inflation has recently started to slow down, indicating that the U.S. economy may be reaching the limits of its capacity. The Federal Reserve’s Board of Governors wrote in a statement that “In light of recent developments and in order to assess their implications for the economic outlook, the committee decided to continue monitoring the underlying economic factors that influence the outlook.” This pause will allow the Reserve to monitor the situation, without further raising rates and possibly putting the economic recovery in jeopardy. The Fed has also suggested that it doesn’t expect to increase rates for the remainder of the year, however a potential rate cut if inflation remains below the target is not completely out of the question. This decision to pause the rate hikes was widely expected and was backed by both Republicans and Democrats in Congress. The immediate impact of the Federal Reserve’s announcement is that borrowing costs for businesses and consumers are likely to remain relatively low in the near term. This could potentially help fuel economic activity, as people and businesses won’t be as burdened or deterred by higher interest rates. Overall, the Federal Reserve’s decision to pause its recent pattern of rate hikes in response to low inflation is a positive for the economy. This pause allows for the Fed to assess the underlying economic factors before making a decision to either raise or lower rates. However, the ultimate impact of the announcement will depend on how the economic situation develops in the coming months.