Federal Reserve maintains interest rates, signals potential hike

The U.S. Federal Reserve concluded its two-day monetary policy meeting on Wednesday, maintaining its federal funds target rate at 5.25%-5.50%, aligning with market expectations. The decision was not unanimous, with seven of the nineteen members advocating for the current rates to hold steady.

Despite keeping the rates unchanged, the Federal Reserve indicated a potential rate increase in the near future. The central bank hinted that the federal funds target rate could rise to 5.75%, suggesting a forthcoming rate hike. This comes after a series of 11 rate increases since the beginning of the interest rate hike cycle last year, cumulatively raising the rate by 525 basis points.

Looking ahead to 2024, the Federal Reserve has revised its year-end interest rate forecast upwards to 5.1% from June's estimate of 4.6%. This adjustment indicates a possible shift in strategy towards maintaining higher rates for extended periods and implementing fewer rate cuts than previously projected.

In addition to interest rates, the Federal Reserve also provided updates on inflation and GDP forecasts. Current inflation levels are deemed 'elevated' but have been marginally reduced to 3.7% from an earlier figure of 3.9%. The central bank anticipates a decline in inflation to 2.6% next year.

On the growth front, GDP predictions for this year have been revised upwards to 2.1% from an initial estimate of 1%. The forecast for next year's GDP growth has also been increased to 1.5% from an earlier prediction of 1.1%.

The Federal Reserve will continue monitoring the impact of previous rate hikes on the economy, which will guide future changes in monetary policy.

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