US Fed holds interest rates at 22-year high

The Fed’s decision to keep interest rates between 5.25 and 5.5 percent gives policymakers time to “assess additional information and its implications for monetary policy,” the central bank said in a statement.

Despite the lack of monetary tightening, the United States still has a long way to go to sustainably return inflation to the long-term target of two percent, Fed Chairman Jerome Powell said at a news conference on Wednesday.

He added that the Fed is “not thinking about rate cuts at all right now.”

The Fed’s widely expected decision to hold rates steady marks the first time officials have done so at two consecutive meetings since they began tightening monetary policy last year.

The US central bank added that future decisions on policy strengthening would “take into account the cumulative tightening of monetary policy, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments.”

– Strong growth –

Since peaking above 7 percent in June last year, inflation, as measured by the Fed’s preferred benchmark, has fallen by more than half, although it remains firmly above 3 percent.

Many analysts, including those at the Fed, predicted that the United States would enter a recession this year due to the rapid pace of interest rate increases.

When the Fed raises rates, it increases the cost of borrowing from the bank, which should dampen economic activity and weaken the labor market.

But despite its aggressive monetary tightening, the Fed noted that “economic activity grew at a robust pace in the third quarter.”

Job growth remains strong and the unemployment rate has remained low, the report said.

The Fed’s move is likely to raise expectations that it is done raising rates and is heading for an extended pause.

– Rising interest rates –

Despite a recent series of strong economic data, the Fed’s interest rate decision has become easier due to the rise in yields on longer-term government bonds.

While the Fed’s key short-term rate mainly influences the interest rates offered by banks, Treasury yields determine “everything from mortgage rates to corporate and municipal bond yields,” KPMG chief economist Diane Swonk wrote in a recent note to customers.

The Fed is “attentive to the rise in longer-term interest rates, which have contributed to a tightening of broader financial conditions since the summer,” Powell said.

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