The US Federal Reserve opted to maintain its interest rates at a 22-year high in response to the ongoing moderation of inflation from its historically high levels. Jerome Powell, the Fed’s chairman, emphasized the Fed’s unwavering commitment to combatting inflation and suggested that this battle still has a considerable distance to go. Despite the Fed’s string of interest rate hikes, the resilience of the world’s largest economy has defied expectations.
The Fed’s benchmark federal funds rate was retained within the range of 5.25% to 5.5% following the conclusion of a two-day policy meeting. Powell emphasized that the central bank remains steadfast in its commitment to curbing inflation. Recent indicators, he stated, point to robust economic expansion, surpassing earlier predictions.
Fed officials initiated an aggressive campaign against inflation in March of the previous year. While they implemented a rate hike in July, they have adopted a wait-and-see approach to assess the effectiveness of their measures.
The US consumer price index for September indicated a year-on-year inflation rate of 3.7%, which, although lower than the peak of 9.1% in June 2022, still substantially exceeds the Fed’s medium-term target of 2%.
Simultaneously, the US economy has demonstrated vigorous growth, achieving its fastest pace in nearly two years. The third quarter saw an annualized GDP growth rate of 4.9%.
The labor market has remained resilient, with 336,000 jobs added in September and an unemployment rate of 3.8%. The latest non-farm payrolls data for October will be released on Friday.
Powell indicated that policymakers are uncertain whether the current rate hikes are sufficient. Future decisions have not been finalized, and discussions will continue at the next rate-setting meeting on December 12.
Nancy Vanden Houten, lead US economist at Oxford Economics, expressed expectations of no further Fed rate hikes but acknowledged that risks lean in that direction. The Fed is seeking more evidence of reduced job and wage growth to ensure that inflation is on a sustainable path towards 2%.
In summary, the Federal Reserve’s decision to maintain interest rates reflects the ongoing effort to address inflation, despite the impressive economic resilience demonstrated by the US. The central bank remains vigilant in its approach to strike a balance between curbing inflation and supporting economic growth.