The Federal Reserve held interest rates steady in a decision released Wednesday, while also indicating it still expects one more hike before the end of the year and fewer cuts than previously indicated next year.
While the no-hike was expected, there was considerable uncertainty over where the rate-setting Federal Open Market Committee would go from here. Judging from documents released Wednesday, the bias appears towards more restrictive policy and a higher-for-longer approach to interest rates. Over the longer term, FOMC members again pointed to a funds rate of 2.9% in 2026. That's above what the Fed considers the"neutral" rate of interest that is neither stimulative nor restrictive for growth. This was the first time the committee provided a look at 2026. The long-run expected neutral rate held at 2.5%.
There were a few changes in the post-meeting statement that reflected the adjustment in economic outlook. There are growing signs that the central bank may yet achieve its soft landing of bringing down inflation without tipping the economy into a deep recession. However, the future remains far from certain, and Fed officials have expressed caution about declaring victory too soon.The jobs picture has been solid, with an unemployment of 3.8% just slightly higher than it was a year ago.
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