Announcement follows mixed inflation, jobs data
In what has been a widely expected move, the US Federal Reserve announced today that it will hold interest rates steady. The benchmark federal funds rate will remain between 5.25 and 5.5 per cent, the highest interest rate of the past 22 years.
This hiking cycle has largely been aimed at controlling runaway inflation, which peaked at 9.1 per cent in June of 2022. As of September the rate had fallen to 3.7 per cent, but unexpected resilience in the US economy as well as persistent global instability has kept inflation somewhat stickier than the central bank had hoped.
“Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated,” the decision announcement reads. “The U.S. banking system is sound and resilient. 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. The Committee remains highly attentive to inflation risks.”
War in the Middle East has sparked some increased volatility in oil and commodity prices which has contributed to inflation. Conversely, US factory activity recently stumbled to a three-month low as production growth sagged and demand stayed soft.
Perhaps most importantly, labour markets have remained resilient, with US job openings rising unexpectedly again today. The labour supply has grown slightly in recent months, but the continued demand for labour poses risks around inflation.
While analysts predicted a pause at this meeting, there is a widespread expectation that Fed chair Jerome Powell will not fully close the door on further interest rate increases. The decisions of the Federal Open Market Committee have long been focused on striking a balance between their target 2 per cent inflation rate and the unemployment rate. While the labour market stays relatively tight the option for Powell to raise rates remains on the table.
