Fed Defers Rate Hike as CPI Remains Unchanged

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The Federal Reserve (Fed) decided to keep the target range for the federal funds rate between 1 and 1.25 percent. This is in line with its economic data which shows inflation running below its targeted 2% threshold and as confirmed by the Consumer Price Index that remained unchanged on a seasonally adjusted basis last June.

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The Federal Open Market Committee of the Fed revealed in an official statement its decision to defer raising the benchmark rate for short-term loans such as adjustable-rate mortgages and home equity lines of credit or HELOCs. The latest rate hike occurred in June when the Committee adjusted the targeted range at 1 to 1.25%.

In its official statement, the Committee described the general economic affairs since its June meeting: “On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

The Committee however expects that, given gradual adjustments, “economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.”

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“In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the fed funds rate at 1 to 1-¼ percent”, according to the statement. The Committee also maintained its accommodative stance should the above conditions improve.

The Committee further reiterated its plan to normalize its balance sheet by offloading investments in mortgage-backed securities and Treasury securities and reinvesting them relatively soon.


Some experts attributed the Fed’s stance to keep the targeted range to the weak CPI. It is an important indicator of inflation compiled by the Bureau of Labor Statistics (BLS).

The CPI measures changes in the prices of consumer goods and services. It traces the spending patterns of two groups: urban consumers that represent 89% of the whole population in the U.S. and urban wage earners and clerical workers.

For the month of June, the CPI did not show any changes. If seen on a 12-month period ending June, the index for all items increased 1.6% on a seasonally unadjusted basis. According to the BLS, the said index has been on a decline since February when it hit 2.7%.

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