The US Federal Reserve on Wednesday left interest rates unchanged at between 5.25 per cent and 5.50 per cent for a second time, leaving them at a 22-year high amid “elevated” inflation levels.
“Economic activity expanded at a strong pace in the third quarter,” the US central bank said in a policy statement.
It also said job gains are still “strong”.
How long the historically high rates will remain elevated is unclear, but Fed Chairman Jerome Powell told reporters at a press conference that central bank was “not talking about rate cuts”.
The Fed's statement said that it is considering “the extent of additional policy firming that may be appropriate to return inflation to 2 per cent over time”.
Wednesday's announcement comes after a period that saw a booming economy – highlighted by 4.9 per cent gross domestic product growth – and a confusing mixture of economic data.
The central bank's preferred measure of inflation has steadily fallen since its 5.6 per cent peak last year to its current 3.7 per cent level.
“We understand the hardship that high inflation was causing, and we remain strongly committed to bringing inflation back down to our 2 per cent goal,” Mr Powell said.
“Price stability is the responsibility of the Federal Reserve. Without price stability, the economy does not work for anyone.”
The job market has also shown signs that it is coming into better balance, although wages are still outgrowing inflation.
“Declining inflation has not come at the cost of meaningfully higher unemployment – a highly welcome development, but a historically unusual one,” Mr Powell said at the Economic Club of New York on October 19.
Buoyed by this strong economy, the Fed expects that interest rates will be high for longer than previously anticipated.
And while the Fed appears well on track to achieve its so-called soft landing, Mr Powell has tried to keep a cautious tone.
“In light of the uncertainties and risks and how far we have come, the committee is proceeding carefully,” he said. “We will continue to make our decisions meeting by meeting.”
The central bank has not included a recession in its forecast.
After the central bank's September meeting, outside circumstances – such as the United Auto Workers' strike, the resumption of student loans, and geopolitical tension – cloud the US's economic outlook.
The outbreak of war in the Middle East since the Fed's September meeting only adds to this.
Mr Powell addressed the strike and geopolitical tension, saying that “there's plenty of risk out there” and “our job is to monitor those things for their economic implications”.
Treasury yields included in Fed's 'broader picture'
The Fed's interest rate decision is only one piece of an economic puzzle that markets will put together on Wednesday.
In what was another closely watched decision, the Treasury Department announced its quarterly refunding statement.
The Treasury Department stated that it would sell $112 billion of longer-term securities at its so-called quarterly refunding auctions, a lower amount than expected.
It will include $48 billion in three-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds.
Treasury yields climbed to 5 per cent last week, leading to tightened financial conditions that another rate increase would also have caused.
While inflation continues to show signs of moderation from its July 2022 peak of 9.1 per cent, Treasury yields have largely been on the minds of Fed officials since their meeting in September.
Because higher Treasury yields lead to higher borrowing costs, it has given central bank officials reason to keep interest rates steady.
“It isn't any one thing we would never look at, for example, long-term Treasury rates in isolation, nor will they be ignored. We would look at them as part of a broader picture,” Mr Powell said.
