In a press release on Wednesday, December 13th, the United States Federal Reserve announced that it is keeping its federal funds rate, the central bank’s main policy indicator, unchanged. According to the bank, its Federal Open Market Committee, FOMC,
seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1.2 percent.
As the European Conservative reported yesterday, a 0.1% rise would have been reasonable, but in “the choice between a 0.25% hike and no hike at all,” it was far more likely that the FOMC would keep its federal funds rate unchanged.
There were several reasons for the FOMC not to raise interest rates, including the moderate actual GDP growth numbers we pointed to. Adding to this point, the Federal Reserve’s press release explains that they see indicators of slower economic activity in the current fourth quarter of this year:
Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
The FOMC also reaffirmed its commitment to other aspects of its monetary policy, including the continued sale of Treasury securities that the Federal Reserve bought during the 2020 pandemic and its artificial economic shutdown.
To provide the federal government with ample credit while taxpayers were forced out of work by government regulations, the Fed made an open-ended commitment to monetary expansion. That commitment came to an end when the Fed reversed its expansionary monetary policy in the second half of last year.
With its reduction of the central bank’s balance sheet of primarily U.S. Treasury securities, the Federal Reserve retires the money it receives for those securities. The FOMC’s statement of commitment to further balance sheet reductions therefore means that the Federal Reserve will continue its monetary tightening.
