The Federal Reserve held interest rates steady on Wednesday for the second consecutive meeting — but signaled another hike is possible before year’s end as inflation remains well above its target.
As of the September policy meeting, central bankers have said they still felt one more rate hike would be necessary, which would advance the benchmark federal funds rate beyond its current 22-year high, between 5.25% and 5.5%.
“Recent indicators suggest that economic activity expanded at a strong pace in the third quarter,” the Fed said Wednesday in a statement that was minimally changed from the previous meeting, when the Fed noted the US economy has been expanding at a “solid” pace.
The Fed’s statement also noted that job gains “have moderated since earlier in the year but remain strong.”
Last month, the federal government said the Consumer Price Index in September rose 3.7% — down sharply from its peak of 9.1% in June 2022, but still well above the Fed’s target rate of 2% inflation
In the wake of the pause, the Dow Jones Industrial Average and the S&P 500 rose less than 1% after remaining relatively steady Wednesday morning. The tech-dominant Nasdaq index dropped nearly 2%.
An additional rate hike before the new year appears imminent given the 12 Fed officials that said at the September meeting that they would support one more rate hike before the end of 2023.
Just seven would prefer to maintain the policy stance, Fed Chair Jerome Powell said. Economists are also forecasting rates to peak between 5.5% and 5.75% by year’s end, which would mark one more quarter-point rise.
Meanwhile, consumer spending has persevered despite the core personal consumption expenditures price index (PCE) — which excludes food and energy costs — rising by 0.3% last month.
While core prices kept climbing, so did inflation-adjusted consumer spending, which rose 0.4% in September, according to federal data.
But Powell has also said growth needs to slow — and if it doesn’t, it means the Fed’s policy rate will need to move higher.
“It’s a good thing that the economy’s strong. It’s a good thing that the economy has been able to hold up under the tightening that we’ve done. It’s a good thing that the labor market’s strong,” Powell said at his press conference following the end of the Sept. 19 to Sept. 20 policy meeting.
But “if the economy comes in stronger than expected, that just means we’ll have to do more in terms of monetary policy to get back to 2%. Because we will get back to 2%.”
With Post wires.