After scrutinizing the latest jobs and consumer price index reports, the Federal Reserve elected not to change interest rates this week.
The Federal Open Market Committee kept the target rate between 5.25 percent to 5.5 percent after its meeting Sept. 20. It was the second time in its past three meetings for the FOMC to pause rate hikes. The Federal Reserve has raised rates 525 basis points since early 2022.
“We have covered a lot of ground, and the full effects of our tightening have yet to be felt,” said Federal Reserve Chairman Jerome Powell. “We decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. Looking ahead, we are in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate. Our decisions will be based on our ongoing assessments of the incoming data and the evolving outlook and risks.”
Powell said the Federal Reserve remains committed to bringing inflation to its 2 percent target.
In August, the annual inflation rate moved from 3 percent to 3.2 percent, according to data from the U.S. Bureau of Labor Statistics. The core index, minus the volatile food and energy prices, was down slightly from July at 4.7 percent.
“Inflation has moderated somewhat since the middle of last year, and longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets,” Powell said. “Nevertheless, the process of getting inflation sustainably down to 2 percent has a long way to go.”
Unemployment rose slightly and the pace of job growth slowed in August.
Unemployment ticked up to 3.8 percent from 3.5 percent in July, according to the new report from the Bureau of Labor Statistics. The report noted the number of unemployed persons increased by 514,000 to 6.4 million.
The 187,000 jobs added were down from the annual growth in the past year of 271,000.
“The labor market remains tight, but supply and demand conditions continue to come into better balance,” Powell said.
Powell said a soft landing for the economy and avoiding a recession remains a goal, but the commitment to bring down inflation and provide price stability is even more important.
“If you don’t restore price stability, inflation comes back, and you can have a long period where the economy is just very uncertain and it will affect growth, it will affect all kinds of things,” Powell said. “It can be a miserable period to have inflation constantly coming back and the Fed coming in and having to tighten again and again. So the best thing we can do for everyone, we believe, is to restore price stability.
“We fully appreciate the benefits of being able to continue what we see already, which is rebalancing in the labor market and inflation coming down without seeing an important large increase in unemployment, which has been typical of other tightening cycles.”
Powell also acknowledge the uncertainty facing the economy with the United Auto Workers strike, rising oil prices, resumption of student loan payments and a possible government shutdown. All could impact prices and employment moving forward.
“There’s so much uncertainty around these things,” Powell said.