As expected, the Federal Reserve in the US held its key Federal Funds Rate at a 22-year high on Wednesday, with no rate rise in sight. However, the central bank remains open to the possibility of further monetary tightening, given the ongoing strength of the US economy.
Rates have been maintained in a range of 5.2% to 5.5% since July. For the second consecutive meeting, the Fed's policymakers have opted to assess the health of the economy and the trajectory of inflation before considering any changes.
While the economy continues to grow and inflation shows signs of easing, along with wage growth, job growth remains solid, and job vacancies surged in September to over 9.6 million, well above market forecasts.
Fed Chair Jay Powell expressed concerns about the implications of this data, suggesting that taming inflation may require a slowdown in economic growth and labor market activity. The upcoming jobs report for October and the vacancies data will influence the Fed's decision-making regarding interest rates.
Powell also emphasised that the central bank has not yet begun to consider a rate cut and will only do so once inflation is effectively controlled. He debunked the notion that restarting rate hikes after a pause would be challenging and emphasised that the Fed's actions will align with what it deems appropriate at any given time.
Interestingly, Powell acknowledged that the strength of consumer and small business finances may have been underestimated, as spending remains robust. He noted that pre-pandemic savings levels may eventually return, but that point has not been reached yet.