US Fed keeps rates unchanged, but signals likelihood of another hike this year

The Federal Reserve left its key interest rate unchanged Wednesday for the second time in its past three meetings, a sign that it’s moderating its fight against inflation as price pressures have eased. But Fed officials also signaled that they expect to raise rates once more this year.

The move to leave its benchmark rate at about 5.4 percent suggests that the Fed thinks it has time to wait and see if the 11 rate hikes it unleashed starting in March 2022 will continue to cool rising prices.

Consumer inflation has dropped from a year-over-year peak of 9.1 percent in June 2022 to 3.7 percent last month. Yet it’s still well above the Fed’s 2 percent target, and its policymakers made clear Wednesday that they aren’t close to declaring victory over the worst bout of inflation in 40 years.

Besides forecasting another hike by year’s end, their projections showed they envision keeping rates high deep into 2024. They expect to cut interest rates just two times in 2024, down from the four rate cuts they had envisioned back in June.

The policymakers’ inclination to keep rates high for an extended period suggests that they remain concerned that inflation might not be falling fast enough toward its 2 percent target.

The Fed’s rate hikes have significantly raised the costs of consumer and business loans. In fine-tuning its interest rate policies, the central bank is trying to guide the US economy toward a tricky “soft landing” of cooling inflation without triggering a deep recession.