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Fed Holds Rates Steady, Signals Further Hikes Possible

Source: Federal Reserve

Washington D.C., USA - The Federal Reserve on Wednesday kept key interest rates within a target range of 5.25-5.50%, the highest level since early 2001.

The decision comes as the central bank seeks to reduce persistently elevated inflation while avoiding an economic downturn.

According to the Fed's statement, economic growth was robust in the third quarter, expanding at a 4.9% annualized pace amid solid consumer spending. 

This contrasts with more modest growth in the second quarter.

The statement also noted that monthly job gains have slowed from earlier highs. 

However, they remain solid—the unemployment rate held at 3.8% in October, suggesting continued tightness in the labor market.

On inflation, the Fed reiterated that price increases remain elevated, with the core PCE index rising 3.7% year-over-year in September. 

The statement reiterated the Fed's commitment to returning inflation to its 2% objective over time.

Market analysts had widely expected rates to remain on hold at this meeting following this year's substantial increases designed to dampen demand. 

However, the Fed left open the possibility of further increases if warranted by incoming data and the cumulative effects of policy.

Fed Chairman Jerome Powell has stressed that consistent evidence of a sustained decline in inflation is needed before the tightening cycle can be completed. 

While price pressures have eased in some areas recently, services inflation remains stubbornly high.

Given the elevated risks to inflation, the Fed is expected to continue to raise rates through early 2023, likely at a slower pace and to a lower peak than previously projected. 

Tighter credit conditions could dampen economic growth going forward.