WASHINGTON, Sept. 21 (Xinhua) -- The U.S. Federal Reserve left interest rates unchanged Wednesday, but another increase is likely to occur before this year-end.
At its September meeting, the central bank held the benchmark rate steady at 5.25-5.5 percent -- a 22-year-high.
FUTURE RATE HIKES
"Given how far we've come, we are in a position to proceed carefully," Fed Chair Jerome Powell told a press conference after concluding a two-day policy meeting.
"We want to see convincing evidence that we've reached the appropriate level," he said, referring to interest rates.
He added that while inflation has seen signs of improvement, "we want to see that for more than just three months." Recently released data showed that U.S. consumer price index (CPI) in August rose 3.7 percent from a year ago, still well above the Fed's 2-percent target.
"Economic activity has been stronger than we expected," Powell said, but "we have to do more with rates."
Wednesday's move is a sign that the Fed is "close to the end of its rate hiking cycle," Desmond Lachman, a senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua.
Noting that the Fed has already increased interest rates by the fastest pace in the post WWII period, Lachman said "it seems that the economy is slowing ... And strains are now beginning to appear in the financial system."
The money supply is also now contracting at the fastest pace since records were made for these numbers in 1959, Lachman said.
"My view is that if the Fed were to increase interest rates now, they would be engaging in monetary policy overkill," Lachman said.
Despite the pause, the Fed estimates the federal funds rate will increase another quarter point before the end of the year, to a level between 5.5-5.75 percent.
For 2024, the central bank forecasts it will slash rates to a level between 5-5.25 percent. That's higher than previously predicted.
POLITICAL IMPLICATIONS
While inflation is cooling, it remains at record highs.
Low-income Americans in particular constantly stress over prices at the supermarket.
This occurs in the lead-up to the 2024 U.S. presidential election.
Brookings Institution Senior Fellow Darrell West said food and gas inflation rates remain high and are of great concern to voters.
"It is hard to find the money to pay for basics," West told Xinhua.
But at the same time, overall inflation has come down considerably over the past year, "which helps (U.S. President Joe) Biden in the lead-up to the 2024 elections," West said.
Still, previous elections have seen candidates get burned by inflation.
Clay Ramsay, a researcher at the Center for International and Security Studies at the University of Maryland, noted that in 1980, when former President Jimmy Carter ran for a second term and was defeated by former President Ronald Reagan, inflation hit 14 percent.
That was a major reason why Carter lost, Ramsay told Xinhua.
Inflation is "very important, especially to everyone in the lower half of the income scale," Ramsay said.
"If food, gas, utilities and rent or a mortgage take up three quarters or more of your income, then inflation is very significant for you," Ramsay said.
Currently, the Personal Consumption Expenditures (PCE) price index, which measures consumer spending on items like these, shows 3.3 percent inflation in July relative to the same month a year ago. The PCE is the Fed's preferred inflation gauge.
"So this is not like 1980, but it should not be underestimated in its political effects," Ramsay said. ■
