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Fed Keeps Interest Rate Unchanged- Will Inflation Cool Down?



Fed Chairman Jerome Powell announced Wednesday that interest rates will remain unchanged as an attempt to cool down the inflation rate and also penciled in one rate cutter for the remaining 2024.

 

Since 2012, the ideal annual inflation rate has been considered to be 2% by the Central Bank. Mr. Powel said that the Central Bank wants to keep its benchmark federal fund rate elevated from 5.25% to 5.50% to bring down the annual inflation rate to 2%. Not all inflations are harmful to the country. In fact, it’s considered good for the economy to have prices growing at a steady pace. However, the prices of goods in America have soared high in recent years, drawing in dissatisfaction from citizens.

 

The high federal fund rate, or the rate at which banks loan money to one another, will demotivate borrowing in society. From mortgages to car loans to credit cards, people will have to pay a high interest rate on every kind of loan. This will force inflation down.

 

As the Fed chairman showed in his speech, the consumer price index for May 2024 is 3.3%, one tick lower than April 2024 (3.4%). Despite the definite win against inflation this month, the prices of goods and services remain high.


Economist Lisa Sturtevant said, “The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop. Mortgage rates, which have remained higher for longer, will likely remain in the high sixes until later this year."


Although the central bank is monitoring the flow of money closely, it takes time for inflation to cool down fully. Inflation-weary borrowers have to wait for the next rate cut this year to invest in business ventures, homeownership, or major health treatment.

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