Fed leaves rates unchanged but hints at future hike

The Federal Reserve has refrained from raising interest rates further from a 22-year-high, as it nears the end of its most aggressive inflation fight in decades.

The decision will keep its benchmark rate at a target range of 5.25pc to 5.50pc, but Chair Jerome Powell warned it was too early to say the battle against inflation was won.  

He told reporters in Washington: “The process of getting inflation sustainably down to 2pc has a long way to go.”

It comes as rate-setters at the Bank of England on Thursday face a difficult decision on whether to follow the Fed’s lead or keep piling misery on to mortgage holders.

Inflation is far lower in the US than in the UK at 6.7pc compared with 3.7pc, and so far the American economy shows few signs of a downturn.

Mr Powell said that economic activity had been “far stronger” than expected.

He added that the Fed had revised its expectations for growth this year to 2.1pc, but predicted a slowdown to 1.5pc in 2024 as higher borrowing costs took hold.

The US labour market has proved remarkably resilient in the face of spiralling interest rates.

Mr Powell said that even as it had slowed, job gains were still strong and unemployment remained low.

The strong growth figures paired with the highest interest rates since 2001 suggest that the world’s largest economy could be headed for a soft landing.

Richard Garland, chief investment strategist at Omnis Investments, said: “With core inflation trending down and weakness emerging in several areas of the economy and the labour market, there’s a very good chance that we’ve reached the peak of this US interest rate cycle.”

However, Mr Powell warned that policymakers were watching closely for signs of more persistent inflation and could introduce more rate increases in the future.

The Fed has raised rates 11 times since March 2022 when it began its cycle of tightening.