Fed poised to hold rates steady despite economy's bullish tone

WASHINGTON - Throughout its two-year battle with inflation, the Federal Reserve has tried to squeeze consumers hard enough through higher interest rates that they stop spending, bring demand in line with supply, and drive U.S. economic growth below its potential to ease price pressures.With financial markets expecting the U.S.

Even the rise in bond yields, cited by some Fed officials as a substitute for the central bank's own rate hikes, may simply be a recognition of the economy's strength and an implicit sign the Fed may have to do more to finish the inflation fight."We think real rates are higher due to very strong US growth," analysts from Citi wrote ahead of this week's Fed meeting.

Gross domestic product growth for the third quarter best exemplified the risks the Fed is trying to parse, with pandemic-era savings, combined with a low unemployment rate and ongoing healthy wage increases, allowing consumers to keep fueling strong economic growth. That countered concerns that developments like renewed student loan payments and weakened consumer confidence would cause people to pull back.

Spending has kept growing despite consumer confidence levels that, according to the Conference Board, have dipped to recessionary levels amid a host of concerns. "It's a good thing that the economy's strong. It's a good thing that the economy has been able to hold up under the tightening that we've done. It's a good thing that the labor market's strong," Powell said at his press conference following the end of the Sept. 19-20 policy meeting. But "if the economy comes in stronger than expected, that just means we'll have to do more in terms of monetary policy to get back to 2%. Because we will get back to 2%.

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