Fed keeps interest rates steady as inflation cools

The Federal Reserve said Wednesday it is keeping interest rates steady for now with one more hike expected later in 2023. While U.S. inflation is still too high at at annual rate of 3.7% in August, it's much lower than the 8.3% annual rate recorded in Aug. 2022. Photo by Ken Cedeno/UPI

Sept. 20 (UPI) -- The Federal Reserve said in a Wednesday statement it will leave interest rates unchanged but indicated one more interest rate hike is expected by year's end.

Federal Open Market Committee's decision maintains the target range for the federal funds rate at 5.25% to 5.5%.

The current U.S. annual inflation rate of 3.7% recorded in August is higher than the Fed's goal of 2%, but it is much lower than the 8.3% recorded in August 2022.

"Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated," the Fed statement said.

According to the Fed, the U.S. banking system is sound and resilient, but tighter credit conditions are likely to weigh on household and business economic activity, hiring and inflation.

The Fed reiterated its strong commitment to returning inflation to 2% "over the long run."

According to projections also released Wednesday, the Fed will raise interest rates to a median of 5.6% by the end of this year and said two rate cuts are likely in 2024, half of the number of cuts projected in June.

"In determining the extent of additional policy firming that may be appropriate to return inflation to 2% 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," the Fed statement said.