The Federal Reserve signaled that a run-up in long-term Treasury yields reduces the impetus to raise interest rates again, even as Chair Jerome Powell left the door open to another hike to tame inflation.
While Powell indicated policymakers could raise rates when they meet next month, he also allowed that officials may be done with their tightening campaign. He said he wasn't yet confident to judge whether monetary policy was restrictive enough to bring inflation back to the Fed's 2% target.
"It's fair to say that's the question we're asking is 'Should we hike more?'" Powell said, when asked whether a majority of policymakers still expected another rate increase would be necessary this year.
The U.S. central bank's policy-setting Federal Open Market Committee held interest rates at a 22-year high for a second straight meeting on Wednesday.
The committee said in a post-meeting statement that "tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation," adding the word "financial" to language that previously referred only to credit conditions.
"The extent of these effects remains uncertain," the Fed said, repeating that it "remains highly attentive to inflation risks."
The S&P 500 index and Treasuries extended their rally while the dollar slipped after the announcement. Traders also marked down chances of another hike over the coming months.
In his press conference, Powell said financial conditions have "tightened significantly in recent months driven by higher, longeor — term bond yields, among other factors."
The Fed chief said previous rate hikes were putting downward pressure on economic activity and inflation, and the full effects of tightening had yet to be felt.
"In light of the uncertainties and risks and how far we have come, the committee is proceeding carefully," Powell said. "We will continue to make our decisions meeting by meeting."
He also said additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further rate increases, echoing remarks he made in New York last month.
Unanimous Decision
The unanimous decision left the target range for the benchmark federal funds rate unchanged at 5.25% to 5.5%, the highest since 2001, as part of a strategy to slow the pace of rate increases as the central bank nears the end of its tightening campaign.
Officials made minimal changes to the statement. One tweak was to upgrade their description of the pace of economic growth to "strong" from "solid" to reflect better economic data released since their September gathering.
Policymakers repeated that, in determining "the extent of additional policy firming that may be appropriate to return inflation to 2% over time," they would take into account the cumulative tightening of monetary policy, as well as lag effects on the economy and inflation.
