US Fed keeps policy rate unchanged at 5.25-5.50%

15 Dec 2023


The US Federal Reserve has decided to keep policy interest rate unchanged for a third time in succession, saying that any further tightening of financial and credit conditions will weigh on economic activity, hiring, and inflation.

The Federal Open Market Committee (FOMC) at its meeting on Wednesday decided to keep the policy federal fund rate unchanged at 5.25-5.50 per cent. 

The FOMC said its focus is on the target of achieving maximum employment and keeping inflation at 2 per cent over the longer run. But said its decisions will be based on an assessment of additional information and its implications for monetary policy. 

Fed noted a slowing of the growth of economic activity in the US while unemployment rate remained low. Inflation rate, however, remained elevated, although it has fallen from the previous year highs. Job gains, however, have moderated since earlier in the year.

The Fed said it would continue reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities as planned.

The Fed said it is open to further hikes in interest rate, in order to bring inflation rate to the target 2 per cent level. 

However, any further tightening of monetary policy will be based on the lags with which monetary policy affects economic activity and inflation,  economic and financial developments as well as  international developments, it added.

Federal Reserve chairman Jerome Powell also hinted that the tightening of monetary policy is likely over.

The Fed decision sent the dollar on its biggest weekly drop in five months on Friday while the euro and the pound recorded gains.

 Sterling ended at $1.276 after surging 1.1 per cent to a four-month high of $1.2793 on Thursday.

The Japanese yen ended 0.16 per cent higher at 141.60 per dollar, after rising 0.7 per cent to a four-month high of 140.95 on Thursday.

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