At its latest meeting, the Federal Open Markets Committee has decided to pause on raising interest rates, following a 15-month period of 10 consecutive increases. The current federal funds rate remains at 5 to 5.25 percent, the highest in 16 years.
Informed by a significantly moderated inflation rate of 4.9 percent, as well as 40-basis-point increases across the CPI and a 1.2 percent quarterly increase in labor cost metrics, the Fed has stuck to its data-driven decision making.
The Fed’s choice to pause is motivated by both the data, and its longstanding quest to reduce inflation to 2 percent. At a press conference following Wednesday’s FOMC meeting, Chairman Jerome Powell detailed the motivations for the decision further, saying, “Considering how far and how fast we’ve moved, we judged it prudent to hold the target range steady to allow the committee to assess additional information and its implications for monetary policy.”
A pause in increasing the funds rate was widely predicted by the commercial real estate industry, due to both the encouraging data and the need for the Fed to assess the compounding economic effects of previous rate hikes, and to analyze the current inflation rate’s effects. Michelle Raneri, vice president & head of U.S. research and consulting at TransUnion interpreted this as the case. “This skip is a likely indicator that the Fed wants to give the previous hikes time to have an observable impact, specifically on inflation,” Raneri said in a statement.
At the same time, Powell once again signaled a willingness to alter course. “Nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” he said, describing the July meeting as “live.” Consequently, many in the industry predict another 25-basis-point increase that month, once the Fed views projected economic data trends.