Fed Leaves Interest Rates Unchanged For Third Time In Four Meetings

For the third time in the past four meetings, the Federal Reserve on Wednesday decided to leave interest rates unchanged.

The Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent in an effort to support its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run.

The widely expected decision comes after the Fed also left rates unchanged at its June and September meetings. The central bank raised rates by a quarter point in July.

The accompanying statement was little changed from September, although the Fed did upgrade its assessment of U.S. economic activity.

The Fed said recent indicators suggest economic activity expanded at a “strong pace” in the third quarter after previously saying activity has been expanding at a “solid pace.”

The latest statement also said, “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”

The Fed’s September statement only cited “tighter credit conditions,” with the inclusion of “financial” coming amid the recent surge in treasury yields.

With regard to the outlook for rates, the statement suggests the Fed is still considering additional rate hikes in an effort to return inflation to its 2 percent objective.

The central bank said it will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments in determining whether further increases may be appropriate.

In his post-meeting press conference, Fed Chair Jerome Powell acknowledged recent data showing a slowdown in the pace of price growth but argued the process of getting inflation down to 2 percent has “a long way to go.”

Powell also said the Fed has not made any decisions about future policy meetings but stressed the central bank is not thinking about rate cuts right now at all.

The Fed chief also said he does not believe it would be difficult to resume raising rates even if the central bank decides to leave interest rates unchanged again in December.

“Many Fed officials in recent weeks have indicated that rates were high enough now that they could pause,” said Mortgage Bankers Association Chief Economist Mike Fratantoni. “Inflation is slowing, but not yet back to the 2% target range. This is the most important metric the Fed is watching right now.”

“Even though third-quarter economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time,” he added. “We expect its next move will be a cut in next year’s second quarter.”

The Fed’s next monetary policy meeting is scheduled for December 12-13, with CME Group’s FedWatch Tool currently indicating an 80.1 percent chance rates will remain unchanged and a 19.8 percent chance of a quarter point rate hike.

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