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Fed Holds Key Interest Rate at 22-Year High

The Federal Reserve will continue to watch and wait as its battle against inflation plays out.

As expected, the Federal Open Market Committee announced Wednesday following its seventh meeting of the year that it would hold the federal funds in a target range between 5.25% and 5.5%, where the key rate has been since July.

In a statement, the FOMC said the economy is showing signs of strength and reiterated its view that inflation is still too high, leaving open the possibility of additional rate hikes at future meetings, depending on how the economy performs in the coming months.

At a press conference, Fed Chair Jerome Powell told reporters that while the central bank is clearly making progress, it is “not confident yet” that financial conditions are sufficiently restrictive to achieve its goal of 2% inflation, and that its effort to bring inflation under control still has “a long way to go.”

“The full effects of our tightening have yet to be felt,” Powell said. “Given how far we have come, along with the uncertainties and risks that we face, the committee is proceeding carefully.”

What the experts are saying: Jason Furman, who chaired the White House Council of Economic Advisers during the Obama administration, applauded the Fed’s cautious approach. “The Fed did the right thing (yet again) today,” he wrote. “No mission accomplished on inflation--they recognize more work to be done. But that work may not require more rate hikes and they de facto raised the bar on those hikes to something that we hopefully won't reach.”

Joseph Brusuelas said investors believe the Fed will likely avoid any further rate hikes. “Market clearly thinks that the Fed is done hiking rates & I agree with that,” he wrote.

Nancy Vanden Houten, lead US economist at Oxford Economics, said she too thinks the Fed is done, although there is always a chance of more rate hikes at some point. “We don’t expect further Fed rate hikes, but the risks continued to be tilted in that direction,” she said. “The Fed needs to see more evidence of slower job and wage growth to be convinced that inflation is on a sustainable path back to 2%.”

The bottom line: Inflation has come down significantly but is still too high for the Fed. The central bank will continue to monitor the economy closely while maintaining the option to raise rates again if inflation takes a turn for the worse.

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