The US central bank has left its key interest rate at a 23-year high, as expected, while leaving open the chance it will lower borrowing costs in the months ahead.
In a statement, the Federal Reserve said that its fight to stabilise prices had made “some” further progress, while noting that job gains had “moderated” and unemployment was rising.
But officials said that for now, it remained appropriate to keep the target for the Fed’s key rate in the range of 5.25%-5.5%, where it has stood since last July.
By keeping borrowing costs high, the Fed has been hoping to slow the economy and get price inflation under control.
But the bank is facing mounting pressure to cut rates as inflation eases and the job market cools.
The Fed’s decisions are being closely watched around the world where many central banks are facing similar decisions.
Some banks, including the Bank of Canada and European Central Bank, have already announced rate cuts. Investors are divided about what the Bank of England will do at its own meeting this week.
In the US, many investors expect a rate cut as soon as September.
Analysts said the announcement from the Fed showed greater concern for the job market than it did after the last meeting in June, a sign that officials may opt for a cut in the next couple of months.
“While they are not quite there yet – and still need “greater confidence” – this feels like it is sending a signal that they think the data will have evolved in such a way as to justify the first cut in September,” said Brian Coulton, chief economist at Fitch Ratings.
The Fed’s moves are complicated by the upcoming presidential election.
Analysts say a cut ahead of the November vote could benefit Democrats, as relief trickles out to households and businesses in the form of lower borrowing costs for homes, cars, credit cards and other loans.
Republican candidate Donald Trump has already suggested such a move would amount to playing politics and undermine the bank’s claims to political independence.
But some analysts have warned that the Fed cannot afford to wait, as borrowing costs weigh on economic growth and risk triggering a painful downturn.
Matthew Morgan, head of fixed income at Jupiter Asset Management, said the decision to hold off on lower borrowing costs could “well prove to be misguided”.
“If the Fed waits until it has clarity on unemployment and inflation before cutting rates, it will be too late,” he said. “The balance of risks today already suggests it’s time to get on with it.”
