Federal Reserve to Keep Key Interest Rate Unchanged Amid Economic Pressure

The Federal Reserve is poised to leave its key interest rate unchanged Wednesday at a time when the Fed faces an economy that has proved resilient but is nevertheless under pressure from surging interest rates, overseas turmoil and anxious investors.

Since March 2022, the Fed has raised its key rate from near zero to roughly 5.4% in its effort to tame inflation, which reached a four-decade high as the economy roared out of the pandemic recession in 2020. The costs of mortgages, auto loans and credit card debt have all risen in response. Annual inflation, as measured by the government’s consumer price index, has sunk from a 9.1% peak in June of last year to 3.7%.

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, hitting 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% and has also raised the costs of credit cards, auto loans and many forms of business borrowing.

What’s important for the Fed is that the yield on the 10-year Treasury has continued to zoom higher even without rate hikes by the central bank. That suggests that Treasury yields may stay unusually high even if the Fed keeps its own benchmark rate on hold. Many business and consumer loan rates might, in turn, also stay high, helping keep a lid on economic growth and inflation.

Inflation has tumbled from its highs even though hiring has stayed robust, consumers are spending freely and the economy is growing at a solid pace, confounding expectations among many economists that a recession would likely be necessary to make much progress.

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