Federal Reserve Maintains Interest Rate
The Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the federal funds rate at 5.25% to 5.5%. The interest rate on reserve balances remains at 5.4%.
FOMC also directed the Open Market Desk at the Federal Reserve Bank of New York to set a minimum bid rate of 5.5% and an aggregate operating limit of $500 billion for overnight repurchase agreement operations. This impacts the Federal Reserve Bank’s overnight loans to financial institutions, which helps provide liquidity for the banking system.
In a statement, the FOMC cited its opinion that the economic outlook is still “uncertain.” The committee will continue to monitor economic indicators, but employment and inflation are starting to realign with its goals.
FOMC set economic goals that include maximum employment and roughly 2% inflation. A Bureau of Labor Statistics table shows that 2020 was the last year that inflation was under 2%. Inflation was at 4.7% in 2021, 8% in 2022, and 4.1% in 2023.
In June 2024, the Consumer Price Index increased by 3% year over year. Transportation and shelter saw the most significant increases at 9.5% and 5.2%, respectively. Electricity rose by 4.4% and utility gas by 3.7% in the same period. Decreases in the costs of used cars and trucks (-10.1%), gasoline (-2.5%), and non-energy commodities (-1.8%) moderately offset the price increases in other sectors.
The Federal Reserve says FOMC will revisit the federal funds rate as new economic data comes in. This could be as early as September, when some markets anticipate a rate decrease. High-risk assets tend to respond favorably to low interest rates due to the lower cost of borrowing money. Digital asset investors especially watch government policies like the Federal Reserve’s monetary policy closely due to this sector’s sensitivity to worldwide government policies.
The federal funds rate also affects interest rates for loans, mortgages, and savings accounts at depository institutions like banks and credit unions. The Federal Reserve may use changes to the federal funds rate to impact economic sectors like the housing market, which often depends on mortgage interest rates.
FOMC has voted to maintain the federal funds rate at its previous level as it continues to monitor an inflation rate that has begun to decline in the past year. It expressed cautious optimism about its ability to bring inflation back in line with its 2% goal despite an “uncertain” economic outlook.
