Federal Reserve hold rates for third time but hints at future cuts

The US Federal Reserve has kept interest rates on hold for a third time in a row, as “inflation has eased over the past year but remains elevated”.

The announcement from the Federal Open Market Committee (FOMC) today sees the federal funds rate remain between 5.25 per cent and 5.50 per cent, its highest level in 22 years.

In order to “achieve maximum employment and inflation at the rate of 2 per cent over the longer run”, the FOMC “decided to maintain” the rates that were previously set.

“The committee is strongly committed to returning inflation to its 2 per cent objective,” said FOMC.

In a statement issued this evening, the FOMC stated that it “remains highly attentive to inflation risks”. It added that the US banking system “is sound and resilient.”

It was noted that “tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation” and to the “extent of these effects remains uncertain.”

This comes after the US economy grew faster than initially thought in the third quarter, as gross domestic product (GDP) increased at a 5.2 per cent annualised rate. This figure was up from the previously reported 4.9 per cent pace that the Commerce Department’s Bureau of Economic Analysis estimated.

Eyes will now be on the Bank of England, as tomorrow Governor Andrew Bailey is expected to also hold interest rates for a third time. AJ Bell analysts Russ Mould and Danni Hewson said the Bank is expected to remain in “wait-and-see mode” and leave the bank rate at 5.25 per cent.

The European Central Bank is also expected to hold its interest rates tomorrow.