Washington: The US Federal Reserve is most likely to maintain a pause on interest rates for the second consecutive time after the conclusion of the Federal Open Market Committee’s (FOMC) two-day meeting on Wednesday, November 1, 2023.
The Fed has been raising interest rates aggressively this year in an effort to combat high inflation. However, there are signs that inflation is starting to cool, and the Fed may want to take a pause to assess the situation.
In addition, the Fed is also concerned about a potential recession. The economy is slowing, and the Fed may want to avoid raising interest rates too high, which could tip the economy into a recession.
Here are some of the factors that the Fed is likely to consider when making its decision on interest rates:
- Inflation: The Fed’s target inflation rate is 2%. However, inflation has been running much higher than that in recent months. In June, inflation was 9.1%, the highest level in over 40 years. The Fed will be looking for signs that inflation is starting to cool before raising interest rates again.
- Economic growth: The economy grew at an annual rate of 2.3% in the second quarter of 2023. This is down from the 5.7% growth rate in the first quarter. The Fed will be looking for signs that the economy is still growing, albeit at a slower pace.
- Unemployment: The unemployment rate is currently at 3.6%, which is near a 50-year low. The Fed will be looking for signs that the labor market remains strong.
- Financial markets: The stock market has been volatile in recent months, and the bond market has seen a significant sell-off. The Fed will be looking for signs that the financial markets are stabilizing before raising interest rates again.
Overall, the Fed is likely to maintain a pause on interest rates at its November meeting. The Fed will want to see more evidence that inflation is cooling and that the economy is still growing before raising rates again.
“Fed commentary has all but confirmed that the Fed will stay on hold in November”, Bank of America wrote in a note to its client.
Any change in interest rate by Fed will impact both Indian markets and the economy. With the hike in interest rates, market tends to come down, foreign investors pull out and foreign exchange reserves start to deplete. Therefore, a higher interest rate by Fed Reserve will mean the Indian economy on risk of mounting inflation and rupee further falling against the Dollar.