by Howard Schneider
WASHINGTON (Reuters) – The US Federal Reserve (Fed) on Wednesday, as expected, maintained the Fed funds rate target at 5.25%-5.50% after a pause decided at its previous meeting in September , while leaving the door open to further increases in the cost of credit.
This decision was taken unanimously, the American central bank said in a press release published at the end of its two-day monetary policy meeting.
In the financial markets, the main indices on Wall Street increased their gains after this decision, while the dollar lost its strength against a basket of reference currencies.
Treasury yields fell at the same time, with the ten-year falling to its lowest level in two weeks during the session as traders revised upwards the probability that the Fed had finished the cycle of rate hikes that began in March 2022. They now expect the American central bank to make a first reduction in the cost of credit by June 2024.
“The (Fed) statement leans on the dovish side,” said Peter Cardillo, chief economist at Spartan Capital Securities. “The fact that the Fed left rates unchanged for the second time in a row suggests that it could leave rates unchanged in December. And if it does, that means the Fed is done raising rates.”
The Fed, however, highlighted the surprising strength of the economy in its statement, while noting the tighter financial conditions facing U.S. businesses and households.
“Economic activity grew at a strong pace in the third quarter,” writes the Fed, while recent data shows that the gross domestic product (GDP) of the United States increased in the July-September period by 4 .9% on an annual basis.
The Fed also described the jobs market as still “strong” and inflation still “high,” saying it continued to study “the extent of further policy tightening that might be appropriate for bring inflation down to 2%.
Speaking at a press conference following the Fed’s statement, the president of the American central bank, Jerome Powell, stressed that stricter financial conditions could weigh on the institution’s decisions if they persist.
Yields on long-term Treasuries have risen about a percentage point since the Fed last raised rates last July, even though the central bank’s policy rate has remained unchanged since then.
Jerome Powell also dampened expectations about a possible rate cut, saying the subject was not discussed during the two-day meeting of the Fed’s monetary policy committee.
“The question of rate cuts simply does not arise” at the moment, he said.
(Reporting Howard Schneider; French version Claude Chendjou, edited by Jean Terzian)
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