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A very big and important news is coming out from the economic corridors from America, which is called the world’s largest economy and the pivot of global financial markets. us central bank Federal Reserve (US Federal Reserve) Has taken a big decision regarding interest rates. Inflation rate in America still remains above the target of 2 percent set by the Central Bank, despite this, in its recent meeting, the Fed has kept the interest rates stable by not increasing them in any way. After this decision, the Fed has maintained the benchmark interest rate in the range of 3.75% to 4%. Despite continuing concerns on the inflation front, this step taken by the Federal Reserve has sparked discussions in the global markets. Let us know in detail why the US Central Bank took the risk of not increasing interest despite high levels of inflation and what are the main reasons behind it.
Federal Reserve is waiting for inflation data and economic trends
The first and foremost reason behind the Federal Reserve not changing interest rates is that the central bank wants to deeply assess the upcoming economic data before taking policy decisions. In its official statement issued after the meeting, the Federal Open Market Committee (FOMC) admitted that inflation in the country still remains at a slightly high level.
However, policy makers believe that instead of taking drastic measures in haste, it would be wiser to wait for new and clear data related to inflation, employment and overall economic growth. Many senior Fed officials also say that current interest rates are already at very high levels and are putting pressure on economic activity. In such a situation, taking the next step without concrete signals can lead to unnecessary slowdown in the economy, to avoid which the Central Bank is currently adopting the policy of ‘Wait and Watch’.
Strong pace of US economy and balance of corporate investment
The second most important reason behind keeping interest rates stable is the internal strength of the American economy. The Federal Reserve has made it clear in its assessment that the US economy is currently growing at a very strong pace.
Consumer spending in the country remains at a high level and the unemployment rate in the labor market is also low. Additionally, huge corporate investment in advanced technology areas, especially in areas related to Artificial Intelligence (AI) and digital infrastructure, has provided a strong support to economic growth. In such a strong environment, a big challenge before the Fed is that on one hand it has to control inflation and on the other hand it also has to maintain the pace of economic growth. If the rates were increased further in this situation, then inflation might have been curbed a bit, but it could have negative pressure on market growth and business activities.
Clear differences and disagreements regarding rates within the Fed itself
This time, this decision of the Federal Reserve has not been taken completely unanimously, which is an indication that there are different opinions even among the officials deciding American monetary policy.
Out of the total 12 voting members of the committee, 10 members cast their vote in favor of keeping the interest rates stable at the current level, but two members were also seen standing against this decision. Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack voted in favor of increasing interest rates by 25 basis points. This disagreement between these two members shows that there are clear differences within the US Central Bank regarding how aggressive or strict policy should be adopted further to control inflation.
Mixed effect seen on American stock markets, now all eyes are on December meeting
After this decision of the Federal Reserve, mixed and calm trading was seen in the American stock markets on Wednesday. The Dow Jones Industrial Average and the S&P 500 index were up marginally around 0.1% each, while the Nasdaq Composite was seen trading slightly lower.
Meanwhile, a rise in technology stocks helped the S&P 500 and Nasdaq recover for the second consecutive trading session. Now the eyes of investors and stock market veterans around the world are fixed on the next meeting of the Federal Reserve to be held in the month of December. The latest employment and inflation data coming in the coming weeks will play a decisive role in deciding which new path the US Central Bank chooses to cut or increase interest rates by the end of the year.