Fed Leaves Interest Rate On Hold
Having announced that rates will not be rising for the foreseeable future, it should surprise nobody that the Federal Reserve has done just that and left rates on hold. The current interest rate, charged by the Federal Reserve to banks wishing to borrow funds from it, remains in a band from 2.25 to 2.5%.
The stronger than anticipated Q1 performance of the US economy where (annualised growth) came in at 3.2% led to speculation in some quarters that the Fed would raise rates to stave off general inflation caused by wage inflation. Simultaneously, the President was calling on the Fed to lower interest rates to further boost the US economy, suggesting (without any evidence) that a cut by 1% would make the US economy growth “go up like a rocket”. In Europe and Japan, where rates are already much lower than in the US, this has not been the case.
Current Fed policy suggests that rates will remain untouched for the rest of the year, unless circumstances change. The Fed started the process of normalising interest rates from an historic low of 0.25% in December 2016 in a series of nine 0.25% increments with the most recent rise last year. President Trump has criticised the Fed for “incessantly” raising rates. Urging the Fed to cut rates, the President said: "with our wonderfully low inflation, we could be setting major records". Responding to recent remarks by Trump, the Fed’s Chairman, Jerome Powell noted: "We are a non-political institution and that means we don't think about short-term political considerations, we don't discuss them and we don't consider them in making our decisions one way or the other."
The Federal Reserve’s average interest rate stands at 5.67% (1971 to 2019), so a rate of 2.25% is low by historical standards. On the other side of the coin, the Fed charged an historically high interest rate of 20% in March 1980.