Federal Reserve maintained its benchmark interest rate on Wednesday in a range of 5.25%-5.50%,
the highest in 22 years, while leaving the door open for further action as officials work to bring inflation back the central bank's 2% target.
In its statement on Wednesday, the Fed upgraded its assessment of the economy to "strong" in the third quarter from "solid" in September.
The central bank noted job gains have "moderated," after having noted in September that job growth had "slowed" during the previous inter-meeting period.
"Recent indicators suggest that economic activity expanded at a strong pace in the third quarter," the Fed said. "Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated."
A majority of Fed officials penciled in one more rate hike at the September policy meeting.
Noting the rise in Treasury yields, which have pressured financial markets in recent weeks, the Fed said in its statement, "Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain."
Fed officials have said they are proceeding cautiously as the central bank mulls future actions on interest rates and takes more time to digest cooling inflation data and judge whether hotter-than-expected consumer spending and job growth could continue, keeping inflation higher for longer.
Given the resilience in the economy, Powell has warned that persistently above-trend growth or continued strong job growth could put further progress on inflation at risk.
He reiterated those warnings Wednesday.
"Slowing down is giving us a better sense of how much more we need to do if we need to do more," Powell said at his press conference.
New spending data out for September showed consumers are spending more than they are earning. Adjusted for inflation, consumers increased spending in each of the last three months while real disposable income fell over the same period, raising the question of how much longer spending could last at these levels.
Meanwhile, inflation based on the Fed's favored gage — the Personal Consumption Expenditures (PCE) Index that excludes the cost of food and energy, or so-called "core" PCE — showed prices rose 3.7% over the prior year in September, in line with where officials expected inflation to end the year, offering the prospect inflation could end 2023 below where officials had expected.
"The public does believe that inflation will get back down to 2% over time," Powell said Wednesday at his press conference. "And it will. They’re right. There is no real crack in that armor."
