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The Federal Reserve held overnight interest rates steady at 5.25% on Wednesday (Sept. 20) and left the door open for further increases if inflation does not come down.
CBS MarketWatch reported that this was the second straight meeting with no change in monetary policy. It follows rate hikes at an unprecedented 17 consecutive policy-setting meetings.
The decision to stand pat was no surprise. Ahead of time, economists were in agreement that the Federal Open Market Committee (FOMC) would continue its policy “pause” to allow more time to assess the likely direction of the economy.
The FOMC statement was little changed from August. The committee said it expects a slower economy to reduce inflationary pressures.
“The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market,” the statement said.
“Inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand,” it said. “Some inflation risks remain.”
The Fed said it remains on guard for higher-than-expected inflation.
Richmond Fed President Jeffrey Lacker dissented again, voting to raise rates.
The financial market, as implied by the fed funds futures market, is betting that interest rates have already hit their peak for this economic cycle, but many economists remain skeptical that the Fed is done.
“We doubt that Fed members are as convinced as the market that they’ve completed the job on rate hikes,” said the economic team at Bear Stearns.
David Rosenberg, chief U.S. economist at Merrill Lynch, said the next FOMC meeting on Oct. 24 will be the “really decisive meeting,” because if rates remain on hold, then there is a good chance the Fed will not hike again.
“History tells us that after a tightening cycle, if the Fed then goes on hold for at least four months, then the probability that the next move is a rate cut is 100%,” Rosenberg said.