The US Federal Reserve on Wednesday announced to keep its benchmark interest rate unchanged at 3.5 per cent-3.75 per cent. With this decision, the central banking system of the United States continues its pause for the fifth straight policy meeting. The decision was widely expected by financial markets.

US Fed Holds Rates Steady

According to Reuters report, the decision to keep rates steady was not unanimous. Three of the 12 members of the Federal Open Market Committee preferred a quarter-percentage-point rate increase. These three officials had reportedly also disagreed at the Fed’s previous meeting. Back then they had supported a different approach on future rate cuts. A post-meeting statement noted that the officials “preferred to raise the target range for the federal funds rate by ¼ percentage point at this meeting.”

What Did Warsh Say?

Kevin Warsh, who became Fed chief in May said he wants stronger action to control inflation. Warsh said he has "no tolerance” for inflation staying above the Fed’s 2 per cent target for a long time. He also said that growth in areas like artificial intelligence may help the economy expand without increasing inflation. In a statement released after the conclusion of its two-day policy meeting, the Fed said, “Inflation remains elevated relative to the Committee's 2 per cent goal.”

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The latest meeting was considered one of the most unpredictable in recent times as Fed officials remain divided over what action to take next. Some officials believed that the strong job market gives the Fed enough room to raise rates and bring inflation back towards its 2 per target. Others wanted to wait as recent inflation data was weaker than expected.

How Will It Impact Global Market?

Keeping interest rates unchanged implies that the Fed has decided not to increase borrowing costs for now. This means loans for consumers and businesses, including mortgages and business financing will likely remain stable in the near term. However, future rate hikes remain a possibility if inflation does not cool further. For global markets, the decision offers stability for now, but if rates are hiked, it can impact the US dollar, stock markets, and bond yields as investors adjust their expectations.

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