UNITED STATES — The Federal Reserve announced on Wednesday that it would not be increasing interest rates at this time, but it still projects a hike before year-end and fewer cuts next year. The decision, which was anticipated, kept the fed funds rate at the highest level seen in 22 years. While the meeting’s no-hike decision was not surprising, there was concern over the path Fed officials may follow in the future.
The outlook for more restrictive policy and a higher-for-longer approach to interest rates was evident in the forecasts released. The market responded negatively, with the S&P 500 falling almost 1% and the Nasdaq Composite down 1.5%. Fed Chair Jerome Powell commented during a news conference that the bank wants to see more progress in its fight against inflation before making further decisions.
Despite this, the bank’s tone indicates a move toward stricter policies and more rate hikes, which could have a significant impact on the economy. The bank also revised its economic growth forecasts, increasing GDP this year to 2.1%, indicating that Fed officials do not foresee a recession in the near future.
The Fed's new stance, which implies more hawkish policies, left some market analysts predicting an economic slowdown. Citigroup economist Andrew Hollenhorst wrote that while the Fed predicts inflation to decline, a significant labor market imbalance is more likely to keep inflation consistently above target.
This hawkish position contradicts recent pronouncements from the Fed, which favored a more balanced approach. In light of the ongoing uncertainties, Fed officials have expressed caution about the future and may thus opt to wait and see before making any further decisions.
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