The U.S. Federal Reserve kept interest rates unchanged on Wednesday but characterised the economy as strong, keeping the central bank on track to increase borrowing costs in September.
The Fed said economic growth has been rising strongly and the job market has continued to strengthen while inflation has remained near the central bank’s 2% target since its last policy meeting in June, when it raised rates.
People spending rises
“Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly,” the Fed said in a unanimous statement following the conclusion of its latest two-day policy meeting.
The Fed’s decision left its benchmark overnight lending rate in a range of 1.75% to 2%. The central bank currently expects another two rate rises by the end of the year.
Investors had all but ruled out a move at this week’s meeting, with their sights set on rate increases next month and in December.
Market reaction
Market reaction to the Fed’s decision was muted as it met expectations on where the U.S. central bank would push policy rates, with the dollar slightly stronger against a basket of currencies and U.S. Treasury yields little changed.
Fed Chairman Jerome Powell recently said the economy was in a ”really good place” and pledged to continue with gradual increases in borrowing costs in order to maintain the second-longest U.S. economic expansion on record.
The economy grew at a pace of 4.1% in the second quarter, its best showing in nearly four years, as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday. Inflation is perking up after six years of undershooting the Fed’s target.
The Fed’s preferred measure of inflation - the personal consumption expenditures price index excluding food and energy components - increased at a 2% pace in the second quarter.