The Federal Reserve maintained the U.S. key interest rate in the range of 5.25% to 5.5%, matching the expectations of investors and economists.
In the statement that accompanied the decision, policymakers said that “inflation remained elevated.”
“Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low,” the Federal Open Market Committee statement said. “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”
The current rate is the highest in 22 years. The Fed started the current tightening cycle in March 2022, when the rate was in the range of 0% to 0.25%. Since then, there have been 11 increases.
The Fed targets an annual inflation of 2%.
The core Personal Consumption Expenditure (PCE) index, which excludes the costs of food and energy and is the Fed’s preferred inflation measure, slightly slowed in September to an annual rate of 3.7%, down from 3.8% in August. Consumer prices peaked at 9.2% in June of last year.
Economic Growth
The American economy more than doubled its pace of expansion in the third quarter as consumer spending remained solid. Gross domestic product expanded at an annual rate of 4.9% in the three months ending in September, as reported by the Commerce Department on Thursday. This represents the fastest growth since the 7% rate observed in the fourth quarter of 2021.
Economists predict that U.S. growth may slow down in the fourth quarter due to events like the United Auto Workers strike, which has now ended with tentative agreements, and the resumption of student loan repayments.
A report released earlier on Wednesday indicated that job creation by private companies accelerated this month, but it still fell below estimates.
New jobs in October totaled 113,000, an increase from 89,000 in September, according to payroll processing company ADP. However, this number was below the estimated 150,000 in a Reuters’ survey of economists.
Annual pay rose by 5.7% from a year earlier, following a gain of 5.9% in September. This marked the 13th consecutive month of slowdown and the smallest increase since October 2021.
The Labor Department will release data for jobs and unemployment for the month of October this Friday. In September, the number of new jobs surged to 336,000, the highest in eight months, while the unemployment rate remained unchanged at 3.8%.
Some executives and investors have expressed doubts about the strength of the economy.
Billionaire investor Bill Ackman stated last week in a post on X that “the economy is slowing down faster than recent data suggests.” The Chief Executive Officer of Pershing Square Capital Management mentioned that the firm had changed its strategy to bet against 30-year bonds.
JPMorgan, Citigroup, Wells Fargo and Bank of America have all indicated in their quarterly earnings reports that consumer spending is slowing.
