The Federal Reserve System (Fed), the central bank of the United States, strongly hinted at its policy of dragging high interest rates for a long time. The Fed has raised its growth forecast for this year to 2.1% based on the judgment that the U.S. economic recovery is better than expected. In addition, the Fed proposed a 0.5 percentage point higher than the June forecast at the end of next year through a dot plot, which means that next year’s rate cut could be smaller than the previous forecast, indicating the Fed’s willingness to tighten. After a two-day regular meeting of the Federal Open Market Committee (FOMC) on the 20th (local time), the Fed decided to maintain its key interest rate at the current level of 5.25 to 5.50%.
The Fed raised interest rates 10 times in a row from March last year to May this year, then froze them in June, and raised the benchmark interest rate by 0.25 percentage points again in July, the previous meeting, to 5.25-5.50%, the highest level in 22 years since 2001. Fed Chairman Jerome Powell said at a press conference, “It was unanimous (members) to maintain the current policy stance at the meeting,” adding, “Seven participants predicted a key interest rate freeze by the end of the year and 12 participants predicted a one-time increase.”
While maintaining interest rate as expected, the Fed strengthened its will to tighten them through a strong “hawkish” message.
The Fed sharply raised its forecast for U.S. economic growth this year from 1.0% at the time of the June forecast to 2.1% this time. In other words, the U.S. economy is showing a strong recovery despite high interest rates, raising expectations for a “soft landing.” In addition, the Fed’s benchmark personal consumption expenditure (PCE) price index rose 0.1 percentage point to 3.3%, and the unemployment rate was lowered from 4.1% to 3.8%. In addition, according to the dot plot showing the median value of interest rates predicted by FOMC members, the base rate level at the end of this year increased by 0.5 percentage point from 4.6% in June to 5.1% this time. This suggests that there will be an additional rate hike of 0.25 percentage points within the year, and that the rate cut next year will be only 0.5 percentage points.
