Inflation remains elevated as the central bank opts to hold
The Federal Reserve has opted to hold its benchmark interest rate in a range between 3.75 and 4 per cent, a decision investors had widely anticipated.
The central bank cited elevated inflation, geopolitical uncertainty stemming from the Middle East war, and a mixed labour picture as factors behind its choice to keep rates unchanged. Still, the Fed noted underlying economic strength in its policy statement.
“While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” said the central bank in a press release announcing the decision.
The hold comes despite an inflation picture that has yet to improve. In September, consumer prices rose 3.7 per cent year over year, a sharp acceleration from the 2.4 per cent pace recorded in February, just before the Iran war. On a month-over-month basis, the consumer price index climbed 0.3 per cent in both August and September - a pace that, if sustained for a full year, would push inflation well above the Fed’s two per cent target.
“Inflation remains elevated. The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal,” the bank added in a statement.
Last month, the central bank hiked its key rate, moving the benchmark from roughly 3.6 to 3.9 per cent in what many investors and economists read as the opening move in a renewed tightening campaign, according to the Associated Press.
The Fed’s decision notably lands less than a week before the midterm elections, a campaign cycle dominated by voter anxiety over the cost of living. Consumers have broadly lost confidence in an economy weighed down by rising prices for gasoline, groceries, clothing and other essentials, the Associated Press reported.
Leading up to Wednesday’s decision, CME FedWatch data showed a roughly 93 per cent probability the Federal Open Market Committee would announce a hold, both Kiplinger and CNBC reported.
According to the outlets, traders now broadly expect the Fed to follow the October pause with a rate increase at its December meeting.
