The Federal Reserve kept interest rates unchanged at its meeting on Wednesday but left the door open to further hikes in the coming months if inflation remains high.
Fed Chair Jerome Powell announced in a press conference after the two-day policy meeting that the Fed would keep interest rates at the 5.25-5.50 percent range but could raise them again in December depending on how job and price data evolve. Its benchmark rate will remain at about 5.4 percent, the highest in 22 years.
Annual inflation, measured by the Fed's preferred measure, remained at 3.4 percent in September for the third consecutive month. Core inflation, which excludes volatile food and energy prices, held steady at 3.7 percent from August to September.
It dropped significantly from the year-over-year peak of 9.1 percent in June 2022, but it remains persistently above the Fed's 2 percent target.
According to Powell, the situation is complex. The Fed is ready to raise rates again if needed but is also wary of disrupting the economy, especially the current dynamic of steady job and wage growth.
"We're not confident that we haven't; we're not confident that we have reached that sufficiently restrictive plateau," Powell told reporters.
"Inflation has been coming down, but it's still running well above our 2 percent target ... A few months of good data are only the beginning of what it will take to build confidence."
The Fed knows the recent financial market turmoil has pushed long-term interest rates to near 16-year highs. The yields have soared since July - the last time the Fed raised the rate - increasing the costs of auto loans, credit card borrowing, and many business loans. Nationally, the average long-term fixed mortgage rate is nearing eight percent, the highest in 23 years.
As higher Treasury bond yields, home mortgage rates and other financing costs could have a significant impact on the economy, Fed officials will be closely monitoring these effects.
The strong 4.9 percent annual growth of the U.S. economy in July–September also played a huge part in keeping rates unchanged. Powell underlined the positive elements of this performance, such as low unemployment, rising wages, and increased demand for goods and services.
Market's response
After the Fed released its policy statement, U.S. stocks climbed and closed higher on the day. Meanwhile, the dollar index fell. As of early Thursday morning, it stands at 106.34.
Against the yen, the dollar dropped 0.37 percent to 150.39 after closing at 150.95. The currency pair typically moves in line with U.S. two-year Treasury yields, which fell 11.5 basis points to 4.958.
In other currencies, the euro closed at $1,0568 before gaining to $1,0598. The dollar also fell 0.5 percent against the Swiss franc to 0.9032.
Gold prices remained in negative territory despite the pullback in yields. As of Wednesday midnight, gold spot stands at $1,984 per ounce.
"The statement leans to the dovish side," said Peter Cardillo, chief market economist at Spartan Capital Securities. "The fact that they left rates unchanged for the second time in a row suggests the Fed might leave rates unchanged in December. And if they do, that means the Fed is done."
Other central banks
The Hong Kong Monetary Authority kept its base rate at 5.75 percent on Thursday, following the Fed's decision. The decision also aligns with other central banks that have slowed their rate hike plans as their inflation measures have improved.
The European Central Bank kept its benchmark rate unchanged last week, as inflation in the eurozone fell to 2.9 percent last month, its lowest level in more than two years. The Bank of England also kept its key rate unchanged in September.
Meanwhile, the Bank of Japan is gradually loosening control on longer-term rates, which could lead to higher borrowing costs in the future.