Fed's Decision: Rates Unchanged

The Federal Reserve made the decision to maintain its target interest rate for the second consecutive policy meeting, acknowledging the robust growth witnessed in recent months.

Why it matters: By keeping the benchmark federal funds rate within the range of 5.25% to 5.5%, the central bank's unanimous decision suggests that their two-year campaign of rate hikes may have come to an end. However, they did not completely rule out the possibility of another rate increase before the year ends.

What they're saying: The Federal Open Market Committee, responsible for setting the policy, stated, "Recent indicators indicate that economic activity expanded at a strong pace in the third quarter." This statement represents an improvement from their previous meeting in September, where they described the expansion as merely "solid."

The third quarter witnessed a 4.9% annual growth rate in GDP, accompanied by impressive job creation, retail sales, and consumption spending in September.

The statement also acknowledged that job gains have now "moderated," a departure from the earlier language suggesting that they had "slowed."

State of play: With inflation showing signs of slowing down, several prominent officials believe it is the right time to exercise patience and allow the series of rate hikes, which have increased rates by more than five percentage points since March 2022, to have their intended impact.

The substantial increase in long-term interest rates across global bond markets is expected to dampen activity in the coming weeks and months. This prospect gives some Fed officials confidence that they have taken sufficient measures to curb inflation.

Yes, but: The decision of whether to raise rates again in December will depend on whether the strong growth observed in late summer continues throughout the fall.

If the growth surge persists, Fed officials may consider further rate increases.