The US Federal Reserve is once again leaving its key interest rate unchanged at its highest level since 2001. However, Fed Chairman Jerome Powell is keeping the door open for another interest rate increase.
The US Federal Reserve (Fed) is extending its interest rate pause. As was widely expected on the financial markets, it left the key interest rate in the range of 5.25 to 5.50 percent. The key monetary policy rate has remained there since July.
Before the two meetings without a change in course, the monetary authorities had raised the key interest rate eleven times since March 2022 in order to curb high inflation. In September, annual inflation in the United States remained unchanged at 3.7 percent. The Fed is aiming for a value of 2.0 percent.
Further interest rate hikes uncertain
However, it remains uncertain whether there will be another increase in interest rates. The key interest rate level reached is the highest in 22 years. In view of the tightening financing conditions, US Federal Reserve Chairman Jerome Powell had signaled that the Fed can now be more patient after its aggressive series of hikes. However, in their updated outlook in September, the monetary authorities had envisaged a further increase of a quarter of a percentage point for this year.
Powell reserves the right to raise interest rates further
In the press conference following the interest rate decision, Powell left it unclear whether this step would take place. “We still have a long way to go to reach the inflation target,” explained the monetary politician. Evidence that economic growth is too robust could require another interest rate hike. However, the consequences of the previous tightening are not yet fully noticeable. The Monetary Policy Committee will “act cautiously” given what has been achieved.
“The Fed is keeping its interest rate arrows in its quiver, but is ready to shoot another one at any time,” commented economist Bastian Hepperle from Hauck Aufhäuser Lamp Privatbank.
Despite the tight monetary policy stance, the US economy more than doubled its growth in the summer quarter. Gross domestic product (GDP) increased by an annualized 4.9 percent from July to September. The Fed spoke of a “strong pace”. According to KfW chief economist Fritzi Köhler-Geib, the central bank will probably have to keep the key interest rate at the current level for “quite a while”. In their view, the latest growth figures underline that the good economic situation will keep price pressure even higher.