Fed Decides Not To Raise Interest Rates

The Federal Reserve announced this week that it would not raise interest rates this month, a sign that the central bank may see the economy as weakening. The decision comes as a key inflation marker showed a higher-than-expected increase in prices.

The central bank announced that it would not increase its current rate target, although the door is open for a potential increase later this year. This outcome is possible, considering an unexpected rise in inflation last month.

Fed Chairman Jerome Powell said that the central bank would “leave our policy interest rate unchanged and to continue to reduce our securities holdings.”

“Looking ahead, we are in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate,” he said.

The decision may also ease fears of a recession caused by an increase in interest rates. The current rates are at the highest levels in almost 20 years. The last time interest rates met this current level, the nation fell into the Great Recession not long after.

Last week, the Department of Labor (DOL) announced that prices rose 0.6% in August, representing a 3.7% increase from last year. The annual rate was higher than the 3.7% expected by economists and significantly higher than the figures from July.

The Consumer Price Index (CPI) increase reflected a number of factors. The increase in the inflation rate occurred while American consumers confronted an increase in diesel and gas prices. Overall energy prices increased 5.6% in August, including a 10.6% increase in the price of gasoline.

Perhaps most distressing for consumers, the “core” index of inflation, which does not count fuel and food prices, was higher than the overall rate. The 4.3% core inflation rate represents a significant increase in housing prices, services, consumer goods and more.

The increase represented the second consecutive increase in the price index.

In addition, August’s jobs report may also reflect higher inflation than expected. August’s job report reflects an addition of 187,000 jobs. The job level was higher than expected but also coincided with an increase in the unemployment rate.