US Fed holds rates at 5.25-5.50pc, hints at cuts

Fed chairman Jerome Powell. Photo / File

The US Federal Reserve has kept its official interest rates unchanged, as was widely anticipated by the financial markets, but has hinted at rate cuts next year.

In support of its goal of achieving 2 per cent annual inflation over the longer run, the Fed maintained the target range for the Federal funds rate at 5.25 to 5.50 per cent.

The Fed’s “dot plot” forecasts showed most officials expect rates will end next year at 4.5-4.75 per cent, suggesting three quarter-point cuts in the Fed funds rate.

It was the fourth pause recorded by the bank so far this year.

The US central bank said recent indicators suggested that growth in economic activity had slowed from its strong pace in the third quarter.

Job gains had moderated since earlier in the year but remained strong, and the unemployment rate had stayed low, it said.

While inflation had eased eased over the past year, it had remained elevated.

“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation,” the Fed’s open market committee (FOMC) said.

“The extent of these effects remains uncertain,” it said.

The Fed seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run.

“In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 per cent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

“In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans,” it said.

Fed chairman Jerome Powell is due to hold a news conference later today.