US Federal Reserve keeps interest rates unchanged at 22-year high, says economy is ‘strong’

The United States Federal Reserve, on Wednesday (Nov 1) voted to keep the interest rate, which currently stands at a 22-year high, unchanged for a second straight meeting. The American central bank also acknowledged the US economy’s surprising strength but has indicated that it may increase borrowing costs in a policy statement.

The Fed’s recent decision would keep its benchmark lending rate between 5.25 per cent and 5.50 per cent where it has been since July. It also gives policymakers time to “assess additional information and its implications for monetary policy,” said the US central bank, in a statement following a two-day meeting.

The central bank has been aggressively raising interest rates since March last year in a bid to control the US’ soaring inflation. However, this was the first time that the officials held rates steady at two consecutive meetings.

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‘Economic activity expanded’

“Economic activity expanded at a strong pace in the third quarter,” said the US central bank. This comes as recent data showed US gross domestic product (GDP) grew at a 4.9 per cent annual rate in the third quarter, reported Reuters.

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Meanwhile, since peaking at more than seven per cent last June, inflation, as measured by the Fed’s yardstick, has slowed by more than half but continued to be stuck firmly above three per cent.

The statement by the US central bank also noted that job gains remained “strong” and inflation still “elevated,” adding that it would consider “the extent of additional policy firming that may be appropriate to return inflation to 2% over time.”

‘Long way to go’

The US has a “long way to go” in bringing the inflation down to officials’ two per cent target sustainably, said Federal Reserve Chair Jerome Powell at a press conference after the initial statement.

“A few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” said Powell. He also said that they are monitoring a rise in longer-term yields.

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“We’re attentive to the increase in longer-term yields, which have contributed to a tightening of broader financial conditions since the summer,” said the Fed chair.

Meanwhile, as per Reuters, markets think the Fed may be done with its rate-hiking campaign. “The statement leans to the dovish side,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“The fact that they left rates unchanged for the second time in a row suggests the Fed might leave rates unchanged in December. And if they do, that means the Fed is done,” he added.

Powell said that the Fed is not discussing interest rate cuts “at all”.

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“The fact is the committee is not thinking about rate cuts, right now at all. We’re not talking about rate cuts,” said the Fed chair.

The earlier statement by the US central bank also said that the Fed is watching the developing impact of its past rate hikes as it is thinking about the next steps, indicating that the full impact of the 5.25 percentage points in rate hikes since March of 2022 has yet to be felt.

(With inputs from agencies)