As it turned out, a delayed Christmas present from the Fed did not arrive before Groundhog Day. Perhaps, now borrowers and future borrowers will get some relief after the Easter Bunny leaves town.
The Federal Reserve -- the central bank of the United States responsible for setting interest rates, managing the money supply, and regulating financial markets -- announced on January 31st that it would keep interest rates where they are for now. If you are an optimist, then you can feel some relief that the Fed didn’t see the need to raise rates again.
Rates have remained at the current level since July when the Fed last raised the benchmark federal-funds rate to a range of between 5.2 percent and 5.5 percent. Four straight meetings have resulted in the Fed maintaining current levels.
RELATED: Fortune.com featured a commentary piece on how the financial markets are realizing how “hawkish” the Fed is and will have to accept that interest rates could remain where they are for several more months. Read that piece here.
The Fed’s 12-member body (called the Federal Open Market Committee) holds eight regularly scheduled meetings during the year. It has tried to achieve what skeptics thought was impossible: raise interest rates to slow down the economic recovery without doing it so quickly that it collapsed the United States into recession. It may be working.
The consumer price index, the main economic measure of inflation on consumers for the previous 12 months, was 3.3 percent. That was up a tad from 3.1 percent a month earlier. To show how far this has dropped in a year’s time, though, consider that prices rose 6.5 percent from December 2021 to December 2022.
However, 3.3 percent is still not 2 percent. And that’s the figure that the Fed wants inflation to reach. Since the rate hasn’t yet dropped to that level, Fed members thought that it was premature to lower rates during the January meeting and may keep the rates at the current level at the March meeting, as well.
RELATED: NBC News has additional information on the cost of many goods over the past year and how consumers are feeling more optimistic about the economy. That could have political implications months from now as the country prepares for a presidential election in November. Read the story about the Fed’s decision to hold interest rates steady here.
Here is what the Fed released after the January meeting regarding its 2 percent inflation target:
“The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum employment in the face of significant economic disturbances. In order to anchor longer-term inflation expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”
RELATED: The Federal Open Market Committee reaffirmed “its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates.” Read the full statement here.
The Fed had been combating the highest inflation in about four decades with a series of interest rate hikes at the fastest rate in about 40 years. The hikes began in March 2022 and included a streak of 11 total increases as the country dealt with soaring inflation that followed trillions of dollars in federal spending following shutdowns due to the responses to the COVID-19 pandemic.
RELATED: Bankrate.com has an extensive analysis of the Fed’s interest rate history beginning in 1981 to the present. It breaks down actions by decade, including reasons behind the decisions, and the key Fed leaders during each period. Read that here.
Much of the inflationary pressures can be attributed to the economic recovery following 2020. Congress has since appropriated nearly $5 trillion in COVID-19 relief and recovery. For perspective: the 2020 fiscal year budget was $4.79 trillion.
The U.S. Government Accountability Office tracked federal relief money to state and local jurisdictions. Much of the federally allocated money hasn’t made it into the economy yet. Jurisdictions have until the final day of 2026 to spend the money. Many local governments, according to the October report, had spent less than half of their allocated relief funds. Read the GAO report here.
The next Federal Open Market Committee meeting is scheduled for March 19-20. But you may want to mark down future meeting dates for a better chance of finding the one when the FOMC will agree that the economy is ready for interest rates to start heading back down.
April 30-May 1
(Meeting schedule provided by The Federal Reserve.)