The Federal Reserve announced it was leaving its benchmark interest rate unchanged at a 22-year high on Wednesday but signaled it could hike rates again in its fight to bring down inflation.
After a two-day meeting the Fed announced its federal funds rate would remain in a range of 5.25 to 5.5% – the same level that the central bank announced in July, when it last raised rates.
“We have come very far, very fast,” said the Fed chair, Jerome Powell. With the pace of inflation slowing, Powell said, the Fed would “move a little more slowly”.
The decision marked the second time this year that the Fed has left interest rates unchanged as it assesses the impact of previous hikes on inflation and the wider economy.
The Fed has been increasing rates at their fastest pace since the 1980s in an attempt to bring down US inflation. Rates have risen 11 times since March 2022 from near zero.
Inflation, which soared after the Covid lockdowns ended, has fallen sharply from an annual rate of 9.1% last June to 3.7%. But the rate of inflation remains well above the Fed’s target of 2%, and there are worrying signs that prices in the US could rise again.
Oil prices have been rising, driven up by cuts in supplies from Saudi Arabia and Russia. The benchmark price of Brent crude is now close to $100 a barrel, posing a new challenge for central banks in their battle against inflation.
In August, US inflation rose to an annual rate of 3.7%, its first rise since 22 June, with energy prices accounting for most of the increase.
Powell noted the US also faces other economic issues. The Republican party is threatening a government shutdown over spending, US auto workers are on strike and the resumption of student loan payments is expected to slow spending.
The impact of these issues was unknowable at this stage, said Powell. The Fed chair added he still believed the US could achieve a “soft landing” – bringing down inflation without causing a recession. “I’ve always thought that the soft landing was a plausible outcome,” he said.
