Berliner Tageblatt - US Fed keeps interest rates at 22-year high

The Fed's decision to keep its benchmark lending rate between 5.25 percent and 5.50 percent gives policymakers time to "assess additional information and its implications for monetary policy," the central bank said in a statement.

The decision was widely expected, given the Fed's stated goal of slowing inflation to its long-term target of two percent.

It marks the first time officials have held rates steady at two consecutive meetings since they began tightening monetary policy last year.

The US central bank added that any future decisions on policy firming would "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."

- Strong growth -

Since peaking at more than seven percent in June last year, inflation as measured by the Fed's favored yardstick has slowed by more than half -- although it remains stuck firmly above three percent.

Many analysts, including those employed by the Fed, were predicting the United States would enter a recession this year due to the rapid pace of interest rate hikes.

When the Fed hikes interest rates it raises the cost of borrowing from the bank, which is supposed to dampen economic activity and weaken the labor market.

But despite its aggressive monetary tightening, the Fed noted that "economic activity expanded at a strong pace in the third quarter."

Job gains remain strong, and the unemployment rate has stayed low, it added.

The Fed's move is likely to raise expectations that it is done hiking interest rates and is moving into a prolonged pause.

- Surging yields -

Despite a recent series of strong economic data, the Fed's rate decision has been made easier by a surge in yields on longer-term government bonds.

Whereas the Fed's key short-term rate mainly affects the borrowing rates offered by banks, Treasury yields determine "everything from mortgage rates to corporate and municipal bond yields," KPMG chief economist Diane Swonk wrote in a recent note to clients.

For some analysts like David Mericle of Goldman Sachs, the "rapid rise in ten-year Treasury yields," played the biggest role in shaping the Fed's call.

With the decision to hold off another rate hike, markets and analysts focused on Fed Chair Jerome Powell's press conference after the announcement.

"Despite the newfound caution, we expect Chair Powell to use the press conference to reassert that the Fed remains data dependent and that the Fed will not hesitate to react if upside risks to inflation are realized," Citi economists wrote in a recent note.

S.Keller--BTB