The Federal Reserve has held interest rates steady – keeping benchmark borrowing costs between 5.25 and 5.5 percent.
The much-anticipated decision is the second time in six policy meetings this year that the central bank has not raised rates, slowing the pace of increases to allow time to assess the impact of its aggressive drive to dampen inflation.
Policymakers indicated however that they still expect another rate hike by the end of the year, according to projections released at the end of the two-day meeting.
The Fed pressed pause on rate hikes for the first time in 15 months in June, following ten consecutive hikes since March 2022, which have seen mortgages and borrowing costs soar.
But in July it resumed its increases – raising interest rates by a quarter percentage point, and taking benchmark borrowing costs to the highest level in more than two decades.
The Federal Reserve has held interest rates steady – keeping benchmark borrowing costs between 5.25 and 5.5 percent
Chairman Jerome Powell spoke to reporters at a press conference following the announcement
While high interest rates are good news for those with money stashed away in savings, experts warn borrowers will continue to face bigger credit card bills.
While markets had priced in a pause at this meeting, there was considerable uncertainty as to where the central bank would go from here.
Projections released alongside the decision showed the likelihood of one more increase this year, followed by two cuts in 2024 – which is two fewer than were indicated during the last update in June.
Speaking at a press conference following the announcement, Fed Chairman Jerome Powell said: ‘We’re in a position to proceed carefully in determining the extent of additional policy firming.’
Andrew Patterson, senior economist at Vanguard, said: ‘The decrease in the number of cuts in 2024 is one of the more telling changes this month.
‘It means (combined with the increase in growth expectations and cut in unemployment rate for that year) that the Fed is increasingly confident that they can pull off a soft landing and that the economy can withstand higher rates for longer.’
Inflation accelerated for a second consecutive month to a 3.7 percent annual rate in August – up from 3.2 percent in July – and still considerably higher than the Fed’s 2 percent target.
Prices rose 0.6 percent month-on-month to August, driven mainly by a jump in gas prices – which accounted for over half of the increase.
How will today’s announcement affect household budgets?
While high interest rates are good news for those with money stashed away in savings, experts warn borrowers will continue to face high credit card bills
Moody’s Analytics economist Scott Hoyt told DailyMail.com: ‘Although the Fed did not raise rates, it clearly left the door open for one more rate hike later in the year.
‘So to a degree consumers get what they see, but on the other hand there’s a lot of debt that is still outstanding at lower rates which at some point is going to roll over.
‘And when that happens that is going to be more expensive for consumers.’
A small share of debt that Americans hold now has a variable rate, Hoyt explained, but this includes credit card debt.
Variable interest rates mean they change in-line with the Fed’s benchmark figure.
Data from Bankrate shows that the average credit card rate is above 20 percent – hovering around 20.71 percent.
If there is another rate hike before the end of the year, that should reflect quickly on the average rate, Hoyt said.
‘But would say credit card rates are probably near their peak for this cycle – if not at it,’ he said.
Car loans, student loans and many mortgages, on the other hand, carry a fixed-rate, so are not immediately impacted by interest rate decisions.
‘When there will be impact is when people need to roll over the debt,’ said Hoyt. ‘So for auto loans, for example, when the consumer chooses to replace the car, then there are going to replace it with a higher rate loan.’
A high benchmark rate – or potential increases down the line – should in theory spell good news for savers, with banks more likely to pay larger interest rates on deposits.
However banks tend to be slower to pass on increases in rates, said Hoyt.
According to Bankrate, the average yield for savings accounts is 0.56 percent, but there are a host of online firms which now offer extremely competitive rates over 5 percent.