- Published
The US Federal Reserve has held interest rates steady at 3.75% - 4%.
asserted
Reserve → publish → %
The decision comes within a week of the midterm elections and after the central bank raised interest rates for the first time in three years at its September meeting.
"The overwhelming consensus, the overwhelming judgement, is that what we've done in this monetary medicine is starting to work some," Fed Chair Kevin Warsh said, referring to September's interest rate rise.
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Warsh → come → rise
Figures published after the Fed's announcement showed the US economy growing at a stronger pace than expected, with inflation running above the Fed's target.
asserted
inflation → publish → target
An interest rate tells people and businesses how much it costs to borrow money – such as with credit cards, mortgages, or business loans – but also what return they get for saving cash.
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they → tell → cash
The Fed influences interest rates in the US through its target range for the federal funds rate, which is the interest rate used by commercial banks for overnight borrowing.
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which → influence → borrowing
What's happening with US interest rates?
asserted
What → happen → rates
In its decision to hold rates steady this month, the Fed said that while inflation remains high, it wanted to gather more information before making another decision to change rates.
asserted
it → hold → rates
The Fed also noted that while there was uncertainty, the US economy remained resilient.
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economy → note → ?
Warsh acknowledged that inflation remained too high, but noted that there were other signs - such as tightening credit conditions - that the economy was moving in the right direction.
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economy → acknowledge → direction
There is plenty more economic data to come between now and the committee's next meeting, the Fed chair added, which should paint a more detailed picture of the state of the economy.
asserted
which → be → economy
At that point, Warsh said, "we'll be, I think, better positioned to determine the right policy decision and the stance of policy.
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I → say → policy
While last month the committee signalled there could be one more rate rise this year, Warsh would not be drawn out on where he thinks they will go in six weeks' time.
uncertain
they → signal → time
"A lot of things can happen, so I'm not going to be able to share with you my musings."
The decision to hold rates steady was not unanimous.
asserted
decision → happen → rates
While 10 of the 12 committee members voted to keep rates unchanged, Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to increase rates to 4%-4.25%, from its current 3.75%-4%.
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Cook → vote → %
The bank's next meeting will be held over 8-9 December.
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meeting → hold → December
What is happening in the US economy?
asserted
What → happen → economy
Warsh said things are moving in the right direction, while the US economy is performing very strongly.
asserted
economy → say → direction
The US economy grew by 3.4% on an annualised basis in the three months to September, stronger than analysts had expected.
asserted
analysts → grow → September
That strong growth was driven by an acceleration in investment, and strong consumer spending.
asserted
growth → drive → investment
While there was an annualised increase in personal spending of 3.8%, the annualised increase in private investment was a huge 19.4% which analysts say was largely due to investment in artificial intelligence.
asserted
analysts → be → intelligence
Prices increased by 3.7% in the year to September, driven higher by fuel and energy prices which have surged off the back of the war in Iran.
asserted
which → increase → Iran
How does the Fed rate affect mortgages, credit cards, and savings?
asserted
rate → affect → mortgages
The Fed uses interest rate changes to try to keep inflation – the rate at which prices change – at 2% a year and keep the job market stable.
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prices → use → market
When inflation is too high, the Fed tends to raise interest rates.
asserted
Fed → tend → rates
This tends to mean higher rates from banks and other lenders, which in turn affects spending and saving decisions.
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which → tend → decisions
For example, someone refinancing their mortgage or buying a property for the first time could face higher mortgage rates.
uncertain
someone → refinance → rates
It could also mean higher interest rates on credit cards or car loans.
uncertain
It → mean → cards
However, it means higher interest rates on savings as well.
asserted
it → mean → savings
This encourages people and businesses to save more, spend less money, and make less investments.
asserted
This → encourage → investments
It also encourages companies to hire less people or slow the pace of pay rises.
asserted
It → encourage → rises
All of this tends to reduce demand and slow inflation.
asserted
All → tend → inflation
When inflation is low or if the Fed believes the economy needs a boost, it cut rates.
asserted
it → believe → rates
The idea is that this will have the opposite affect, with banks dropping rates leading to more spending and less saving from people and businesses.
asserted
banks → have → people
Leaving the rates unchanged means rates on things like new mortgages or business loans are also less likely to change.
asserted
rates → leave → mortgages
It also means interest rates on cash savings are unlikely to rise.
asserted
rates → mean → savings
How much have US interest rates changed?
asserted
rates → change → ?
US interest rates have historically moved around quite a bit.
asserted
rates → move → ?
The Fed then dropped rates to historic lows to encourage spending and job creation during the economic slump and kept them at those lows for several years.
asserted
Fed → drop → years
They picked up again ahead of the pandemic before dropping to as low as 0%-0.25% during the pandemic.
asserted
They → pick → pandemic
They then rose to highs of 5.25%-5% from the middle of 2023 to August 2024 as inflation jumped.
asserted
inflation → rise → August
…and 1 more, not listed.
The Aporia
