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The US Federal Reserve has decided to keep its key interest rates unchanged at a target range of 3.75% to 4%, following a meeting of the Federal Open Market Committee (FOMC). The decision was approved by a 10–2 vote. The Fed said the decision was taken to support its dual mandate of achieving maximum employment and maintaining price stability. It also confirmed that it would continue its policy of maintaining ample reserves in the banking system.
| Particulars | Earlier Rate | New Rate |
|---|---|---|
| Federal Funds Rate Target Range | 3.50%–3.75% | 3.75%–4.00% |
| Interest on Reserve Balances | 3.65% | 3.90% |
| Primary Credit Rate | 3.75% | 4.00% |
The US Federal Funds Rate is like the Repo Rate in India. Both are important policy rates used by central banks to influence liquidity, borrowing costs, inflation and economic growth.
In its statement, the Federal Reserve said that economic activity in the United States is expanding at a strong pace. Domestic spending has remained resilient despite continued uncertainty, partly due to geopolitical developments. The Fed also noted strong productivity growth and robust capital investment. Job gains have remained in line with workforce growth, while the unemployment rate has changed little.
However, inflation continues to remain elevated, which is a major concern for the central bank. The FOMC said it would need to examine more economic data before deciding on the appropriate monetary policy stance to ensure that inflation returns to its long-term target of 2%. The Committee reiterated its commitment to maintaining price stability.
Key Highlights of the Fed’s Decision
| Particulars | Details |
|---|---|
| Central Bank | US Federal Reserve |
| Policy Committee | Federal Open Market Committee (FOMC) |
| Interest Rate Decision | Kept unchanged |
| Federal Funds Rate | 3.75%–4% |
| Voting Result | 10–2 |
| Economic Growth | Expanding at a strong pace |
| Domestic Spending | Resilient |
| Productivity Growth | Strong |
| Capital Investment | Robust |
| Employment | Job gains keeping pace with workforce growth |
| Unemployment Rate | Little change |
| Inflation | Remains elevated |
| Inflation Target | 2% |
| Future Policy | Depends on incoming economic data |
What Does This Decision Mean?
Keeping interest rates unchanged means the Federal Reserve has decided not to increase or reduce borrowing costs for now. This can affect loans, mortgages, credit cards, business investment and financial markets in the United States.
Changes in Secondary and Seasonal Credit Rates
The Federal Reserve also renewed its existing formulas for calculating secondary and seasonal credit rates.
- Secondary Credit Rate: It will remain 50 basis points (0.50 percentage points) above the primary credit rate.
- Seasonal Credit Rate: It will be revised every two weeks. The rate will be calculated using the average of the daily effective federal funds rate and the three-month certificate of deposit (CD) rate over the previous 14 days, rounded to the nearest 5 basis points.
What Is the Primary Credit Rate?
The primary credit rate is the interest rate charged by the Federal Reserve Banks when they provide short-term loans to eligible depository institutions through the discount window. It is different from the federal funds rate, which relates to overnight lending of reserve balances between banks.
Read minutes of monetary policy
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