The Federal Reserve announced this week that it would pause a series of interest rate hikes meant to battle inflation, but also indicated that it would likely resume such hikes later in the year.
The decision not to hike rates was the first such pause in more than a year.
The Fed said this week that its decision allows its Federal Open Market Committee “to assess additional information and its implications for monetary policy.”
The Committee also announced that it would reduce “its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.”
The decision came after the nation’s inflation rate, which is still historically high, showed some signs of slowing.
Core inflation, which includes food and energy costs, increased by a significant 5.3% year-over-year in May.
Fed Chair Jerome Powell said that he foresees “a path to getting inflation back down to 2% without having to see the kind of sharp downturn and large losses of employment that we’ve seen in so many instances.”
He said that this could coincide with a further cooling of the labor market, which would likely indicate an increase in unemployment.
The pause in interest rate hikes may provide some relief for Americans struggling with higher rates of borrowing, while also stoking concerns over a potential increase in inflation.
The likely rate hikes later this year could be an indicator of whether or not the nation will fall into recession.
The decision provides a potential political issue for President Joe Biden, who is currently struggling in national approval polls. An Associated Press-NORC poll last month found that the president registered just a 33% approval rating from the public regarding his handling of the national economy.
The same poll found that just under a quarter of the population believed that the country’s economic conditions are positive.
Less than half of Americans approve of Biden’s handling of our economy.
The low ratings are well deserved. https://t.co/o184U4comQ
— Senator Roger Wicker (@SenatorWicker) June 16, 2023
Perhaps most troubling for the president is that only 61% of Democrats approve of the president’s economic performance and an even lower number, at 41%, rate the country’s economy as good.
