The Federal Reserve maintained its benchmark interest rate on Wednesday in a range of 5.25%-5.50%, the highest in 22 years, while leaving the door open for further action as officials work to bring inflation back the central bank’s 2% target.
In its statement on Wednesday, the Fed upgraded its assessment of the economy to “strong” in the third quarter from “solid” in September.
The central bank noted job gains have “moderated,” after having noted in September job growth had “slowed” during the previous inter-meeting period.
“Recent indicators suggest that economic activity expanded at a strong pace in the third quarter,” the Fed said. “Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.”
This upgraded characterization of the economy comes after third quarter GDP data published last week showed growth clocked in at a whopping 4.9% annualized rate over the summer months, driven in large part by strong consumer spending, punctuated by a surge in retail sales in September.
The Fed reiterated that future rate hikes would be contingent on the impact of previous rate hikes on the economy, lag effects and economic developments.
The decision was unanimous.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the statement read. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
A majority of Fed officials penciled in one more rate hike at the September policy meeting.
Noting the rise in Treasury yields which have pressured financial markets in recent weeks, the Fed said in its statement, “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”
Fed officials have said they are proceeding cautiously as the central bank mulls future actions on interest rates and takes more time to digest cooling inflation data and judge whether hotter-than-expected consumer spending and job growth could continue, keeping inflation higher for longer.
Given the resilience in the economy, Fed Chair Jerome Powell has warned that persistently above-trend growth or continued strong job growth could put further progress on inflation at risk and warrant further rate hikes.
New spending data out for September showed consumers are spending more than they are earning. Adjusted for inflation, consumers increased spending in each of the last three months while real disposable income fell over the same period, raising the question of how much longer spending could last at these levels.
Read more: How does the Fed affect your credit card interest rate?
Meanwhile, inflation based on the Fed’s favored gage — the Personal Consumption Expenditures (PCE) Index that excludes the cost of food and energy, or so-called “core” PCE — showed prices rose 3.7% over the prior year in September, in-line with where officials expected inflation to end the year, offering the prospect inflation could end 2023 below where officials had expected.
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Barbara Terrio is a seasoned business journalist, delving into the world of finance, startups, and entrepreneurship. With a knack for demystifying complex economic trends, she helps readers navigate the business landscape. Outside of her reporting, Barbara is an advocate for financial literacy and enjoys mentoring aspiring entrepreneurs.
