The Federal Reserve held firm on its target federal funds rate, keeping it within a range of 5.00% to 5.25%. But despite confidence in the Federal Open Market Committee's ability to bring down inflation, Fed Chairman Jerome Powell made clear that more rate hikes are possible in the coming months.
"To this point, the economy is avoiding a recession," Robert Haworth, a senior investment strategy director at U.S. Bank Wealth Management, said in a recent U.S. Bank report. "If that persists, there will be less pressure on the Fed to quickly shift course on monetary policy. The focus will continue to be on managing the inflation threat."
The Fed remained committed to ending its previous quantitative easing (QE) program, which consisted of buying Treasury and mortgage-backed assets, the report said. QE's purpose was to increase capital-market liquidity. From a height of nearly $9 trillion, the Fed has reduced the amount of assets on its balance sheet as its quantitative tightening strategy aims to impede inflation by limiting economic growth through the application of higher borrowing costs.
In addition, cost-of-living increases, which had been unimportant for decades, came to dominate consumer concerns in early 2021. Despite marked progress, they remain a problem today.
"We have been seeing the effects of our policy tightening on demand in the most interest-rate sensitive sectors of the economy," Powell told Congress in June. "It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation."
Haworth stated that the Fed's decision to pause its interest rate hikes could show a desire to evaluate other economic data.
"Given the long and variable lag between rate hikes and economic results, it seemed reasonable to Fed officials to take some time to see how things are working so far," Haworth said in the report, also noting that the Fed has made significant progress in mitigating the inflation threat that first arose in 2021.
