The United States Central Bank (Fed), is expected to keep interest rates unchanged for the second policy meeting in a row. This marks the end of a nearly two-year rate hike campaign. These changes in monetary policy reflect favorable economic conditions, including lower inflation and strong job growth, consumer spending, and strong economic growth.
Despite slowing inflation and strong economic growth, Powell and other Fed officials, including Christopher Waller, a member of the Fed's governing board, did not rule out the possibility of a final rate hike. Michael Arone of State Street Global Advisors emphasized the importance of the Fed's tough approach to inflation.
Since March 2022, the Fed has increased its key rate from near zero to about 5.4% in response to the highest inflation in four decades in 2022. This action has affected mortgages, car loans, and credit card debt. As a result, the average 30-year fixed mortgage interest rate has risen nearly 8%. Even with these measures, annual inflation has fallen from a peak of 9.1% to 3.7%.
US economic growth picked up in the July-September quarter due to strong consumer spending and rising wage rates. However, volatile financial markets have resulted in higher long-term rates on US Treasury bonds, lower stock prices, and higher corporate borrowing costs.
Wall Street economists recommend that this market trend will likely lead to an economic slowdown and ease inflationary pressures without additional rate hikes. The rate of return on the 10-year Treasury note has reached 5%, a level not seen in 16 years, due to a surge in Treasury note yields.
