Fed Keeps Interest Rates Steady as Inflation Persists
The U.S. Federal Reserve has decided to keep its interest rates unchanged at 4.25% to 4.50%, marking the first time since last September that they have paused in making changes. This follows a series of rate cuts aimed at boosting the economy.
In its statement, the Fed highlighted that while the job market remains strong with unemployment staying low, inflation (price rise) is still above the target level. The Fed did not mention any progress toward reducing inflation to its desired 2% target, which had been a goal for some time.
Following the announcement, the price of Bitcoin fell to $101,800, reflecting the market's reaction to the news. U.S. stock markets also dropped, with the Nasdaq losing 1.1% and the S&P 500 down 0.9%. The U.S. dollar and gold value didn’t change significantly, while the 10-year Treasury yield rose by 0.05% to 4.59%.
Since the Fed's first rate cut in September, the federal funds rate has dropped by 1%. However, the 10-year Treasury yield, representing the long-term U.S. government debt interest rate, has increased from 3.6% to 4.6%. This unusual shift in short-term and long-term rates is a key focus point for the Fed.
The rise in long-term rates and the recent economic reports showing better-than-expected growth have not gone unnoticed by the Fed. After its December meeting, Chairman Jerome Powell stated that there would be no further rate cuts for now.
At a press conference, Powell clarified that the change in the language about inflation wasn’t meant to send a specific message. Bitcoin and stocks rebounded slightly after his comments, with Bitcoin rising above $103,000 by the time the conference ended.
This pause in rate changes shows that the Fed is carefully weighing its options. While the economy shows strength, inflation continues to be a challenge. The next few months will be important in determining how the Fed will balance these economic forces.