Since launching the most aggressive series of rate hikes in four decades in March 2022 to fight inflation, the Fed has pulled back and has now raised rates only once since May.
The statement noted that recent tumult in the financial markets has sent longer-term interest rates up to near 16-year highs and contributed to higher borrowing rates across the economy.
Long-term Treasury yields have soared since July, the last time the Fed raised rates, swelling the costs of auto loans, credit card borrowing and many forms of business loans. Nationally, the average long-term fixed mortgage rate is nearing 8%, its highest level in 23 years. Chair Jerome Powell and other Fed officials have responded to the surprising evidence of economic strength by saying the Fed will monitor incoming data for any hints that inflation will either further subside or remain chronically above its target level. In the meantime, most Fed watchers expect the central bank to keep rates unchanged in December as well.
“The Fed has to talk tough on inflation,” said Michael Arone, chief investment strategist at State Street Global Advisors. “They have no other choice if they want to keep their inflation-fighting credibility intact.”. On the other hand, turbulent financial markets have sent longer-term rates on U.S. Treasurys surging, driven stock prices lower and raised corporate borrowing costs. Several of the Fed’s policymakers have said they think those trends may contribute to an economic slowdown — and, in process, ease inflation pressures — without the need for further rate hikes.
Though the Fed has raised its benchmark rate to a 22-year high, it hasn’t imposed any hikes since July. Even so, the yield — or interest rate — on the 10-year Treasury note has kept rising, touching 5% last week, a level it hadn’t reached in 16 years. The surge in Treasury yields has caused the average 30-year fixed mortgage rate to reach nearly 8%.
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