The Federal Reserve announced on Wednesday that it will keep its key interest rate unchanged at 0.25%, ending a series of 10 consecutive rate increases that began in December 2021.
The decision came as a surprise to many analysts and investors who expected the Fed to raise rates by another 0.25% to combat rising inflation, which hit a 40-year high of 7% in December.
However, the Fed said that it believes that inflation is mainly driven by transitory factors related to the pandemic and supply chain disruptions, and that it expects inflation to moderate as these factors fade.
The Fed also said that it will continue to reduce its monthly bond purchases by $15 billion, a process known as tapering, which it started in November 2021. The Fed said that it will complete tapering by March 2024, paving the way for future rate hikes if needed.
The Fed’s statement was largely unchanged from its previous one in December, except for acknowledging the recent surge in Covid-19 cases due to the Omicron variant and its potential impact on economic activity and employment.
The Fed’s decision was welcomed by President Biden, who has been urging the central bank to focus on supporting growth and jobs rather than fighting inflation. Biden said that he trusts the Fed’s judgment and independence, and that he shares its view that inflation will ease as the economy recovers from the pandemic.
However, some economists and lawmakers criticized the Fed for being too complacent and behind the curve on inflation, which they argue is eroding the purchasing power of consumers and businesses. They warned that the Fed may have to raise rates more aggressively in the future if inflation does not subside as expected.
The stock market reacted positively to the Fed’s announcement, with the Dow Jones Industrial Average closing up 1.2% and the S&P 500 gaining 1.4%. The bond market also rallied, with the yield on the 10-year Treasury note falling to 1.8%, its lowest level since October.
The Fed’s next policy meeting is scheduled for March 15-16, when it will update its economic projections and provide more guidance on its future plans.
