Fed policymakers meet ahead of interest rate announcement

The two-day Fed policy meeting, led by Fed Chairman Jerome Powell, will culminate Wednesday with a customary announcement on whether the Central Bank will raise interest rates in the near term. Photo by Ken Cedeno/UPI

Oct. 31 (UPI) -- The Federal Reserve Board kicked off its latest policy meeting in Washington Tuesday as Wall Street awaited the latest decision on interest rates amid weakening inflation and a strengthening economy.

The two-day meeting of Central Bank policymakers will culminate a day later with a customary announcement from Fed Chairman Jerome Powell on whether interest rates will be raised, lowered, or maintained in the near term.

Investors widely expected the Fed to put off another hike and maintain interest at the current rate, but would be listening for any indication from Powell about whether the central bank was done raising interest rates after 11 consecutive benchmark increases in an effort to bring inflation down to 2%.

After the last policy meeting in September, the Fed left interest rates unchanged at 5.25% to 5.5%, but also released projections showing it intended to bring interest rates to a median of 5.6% by the end of 2023, while inflation stood at 3.7%.

This time around, investors were expecting another reprieve on rate hikes after the Fed outlined a strategy to combat inflation by keeping the current interest rate in place to sustain the economy's trajectory.

Going into the meeting, the banking chiefs faced the task of coming to terms with several economic head-scratchers, including why consecutive interest rate hikes had failed to have much of an impact on consumer spending, the job market, and overall domestic growth -- factors that could help determine the committee's next move.

Other economic factors could also influence the discussions, including recent signs that the labor market may be slowing after more than two years of continuous job growth, but not necessarily due to layoffs.

In remarks at the Economic Club of New York Luncheon on Oct. 19, Powell said he and fellow board members were determined to bring down inflation to 2% but the strong economy and the potential spread of overseas conflicts could challenge the Central Bank's decision-making for the foreseeable future.

Powell said the Fed was watching the developments in Israel and Ukraine closely for risks to the U.S. economy, adding there was no predictable path forward.

Meanwhile, other policymakers said they expected households to cut spending as inflation was still raising the cost of groceries, gas and utilities.

However, consumers have so far defied historic trends and increased their spending on retail and big ticket items such as new cars and luxury vacations, according to the price index for personal consumption expenditures, a key inflation gauge used by the Federal Reserve, which rose 0.4% in September.

A year ago, economists predicted the country to slip into recession due to the Fed's repeated hikes, but so far that hasn't happened, with recent government data showing five straight quarters of expansion -- the strongest growth for the U.S. economy since 2021.

The policy meeting also takes place as 10-year Treasury yields were cooling down -- dipping 4 basis points to 4.829% early Tuesday -- following a post-pandemic boom on the bond note that electrified Wall Street in recent weeks.

The bond market bottomed out at 0.5% in 2020 as investors fled to risk-free Treasuries during the global pandemic, but bounced back this year as industry recovered following the official end of the national health emergency in May.

Some Fed policymakers have recently indicated their support for keeping current interest rates in place for as long as inflation remains a concern, while also acknowledging the negative impact of surging Treasury yields, which are known to create a drag on the economy.