The US Federal Reserve has decided to pause its efforts to raise the interest rates across the country in response to the recent slowing of the inflation rate. After two consecutive hikes since late 2018, the Federal Reserve’s target range for the federal funds rate – the interest rate at which financial institutions lend funds to each other – will remain at 2.25 to 2.5 percent for now.
The decision follows the Fed’s review of the current US inflation rate, which had been increasing over recent years, but has since begun to slow down. According to the review, the decrease in inflation was mainly driven by the decrease in fuel prices over December and January, as well as the weakening of manufacturing and housing markets since the beginning of the year.
The decision to pause rate hikes comes as a relief to consumers, as a high interest rate can slow down the purchasing power of US households, and reduce economic growth. Notably, the recent reduction in the rate could provide households with some additional discretionary income, which could be used to strengthen the economic expansion.
Although the Fed’s decision to keep the target rate range steady is good news for consumers, it also brings some concerns for investors. With the current rate remaining the same, investors might have less incentive to put their money in US Treasury bills and bonds, which can provide better returns than other investment options.
Ultimately, the Federal Reserve’s decision to pause its rate hikes reflects its efforts to balance the needs and objectives of both consumers and investors. By keeping the rate range steady, the Fed aims to support the fragile economic growth in the US, while also addressing the growing concerns of investors due to a gradually-reducing inflation rate.
