The Federal Reserve said Wednesday it will pause its rate hikes, keeping its benchmark lending rate at a 22-year high.
The move was widely expected, after the central bank signaled in recent weeks that it intended to wait for more data to understand how previous rate hikes are affecting the US economy.
Since March 2022, the Fed has lifted interest rates 11 times and held them steady twice, including September's pause.
The central bank's latest post-meeting statement said "economic activity has been expanding at a solid pace," compared with a "moderate pace" noted in the previous statement.
The statement also noted that job gains have "slowed in recent months," compared with job growth being described as "robust" in the Fed's July policy statement.
Fed officials again emphasized that the central bank is "strongly committed to returning inflation to its 2% objective." Officials deliberate monetary policy again at their two-day meeting next month, which concludes on November 1.
The Fed's latest set of economic projections showed that more officials expect the Fed's key lending rate to top out at a range of 5.63-5.87% this year, meaning there could likely be another rate hike by year's end. Officials revised their expectation of economic growth this year much higher and their projection of the unemployment rate slightly lower. Notably, officials expect fewer rate cuts in 2024 than previously estimated, confirming investors' fears that interest rates could remain higher for longer.
The economic landscape
Inflation has slowed steadily from its four-decade peak last June, and it could ease all the way to the Fed's 2% target without a sharp uptick in unemployment — a scenario known as a "soft landing." Or, inflation could eventually drift down to 2%, but with the economy slipping into a recession as unemployment rises.
Some Fed officials are optimistic they can pull off a soft landing, but the central bank has to contend with a number of uncertainties and economic headwinds in the coming months, including the resumption of student loan payments next month, rising energy costs threatening core inflation's slowdown, consumer fatigue from high inflation and the delayed effects of previous rate hikes on the broader, real economy.
So far, the economy has been remarkably resilient in the face of the Fed's most aggressive inflation-busting campaign since the 1980s. Robust spending on travel, concerts and films fueled the economy during the summer, but it remains to be seen whether that momentum will continue. During his keynote speech at the Kansas City Fed's annual symposium last month, Fed Chair Jerome Powell said the central bank needs to see "below-trend growth" and for the job market to come into better balance in terms of demand and supply. Economists widely expect slower growth this year, rather than an economic slump.
One risk that emerged recently is volatility in energy markets. A combination of production cuts from oil-exporting nations and supply disruptions due to a deadly flooding in Libya helped push up gas prices in recent weeks. The national average for regular gasoline stood at $3.88 a gallon on Wednesday, according to AAA, the highest since October 2022. The Consumer Price Index rose 3.7% in August from a year earlier, up from July's 3.2% rise, with gas prices being the largest contributor to that acceleration. Rising energy prices, if elevated for long enough, could eventually feed into core inflation by making services such as freight and air transportation more expensive. Some economists expect demand to slow the rest of the year, helping ease some upward pressure on gas prices.
This story is developing and will be updated.
