The US Federal Reserve this evening held its benchmark interest rate steady for a second straight meeting, biding time to assess whether cooling economic growth will curb price pressures.
As widely expected, the central bank's policy-setting Federal Open Market Committee voted to keep its overnight federal funds rate target at 5.25 per cent, the level it reached in June after 17 straight increases stretching over more than two years.
The Fed said policy-makers voted 10-1 to extend the interest-rate pause. Richmond Federal Reserve Bank President Jeffrey Lacker dissented, arguing higher borrowing costs were needed, as he did at the August 8th FOMC meeting.
Economists had expected the central bank to again hold its fire out of a belief that an unfolding economic slowdown will help lower inflation over time, and financial markets have been betting the rate-rise cycle has already run its course.
The Fed, however, once again made clear it does not yet feel confident the economy is out of the inflationary woods.
"Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures," the Fed said. "However, inflation pressures seem likely to moderate over time."
Treasury prices pared their gains after the decision, while the dollar edged higher. US stocks remained higher.
A pickup this year in core inflation, which strips out volatile food and energy prices, has kept Fed officials on guard and warning of a potential need for higher rates.
Over the 12 months through July, the central bank's favored core inflation gauge was up 2.4 per cent. Many officials have said they want to keep it in a 1 per cent to 2 per cent range.
"The bottom line is this: With inflation too high, policy must have a bias toward further firming," San Francisco Federal Reserve Bank President Janet Yellen said last week.
But a sharp drop in the price of oil and gasoline in recent weeks should make the Fed's task of turning inflation lower somewhat easier, while providing a bit of a cushion against the risk of a hard economic landing.
The central bank also noted a cooling in the housing market.
"The moderation in economic growth appears to be continuing partly reflecting a cooling of the housing market," the central bank said. "Nonetheless, the committee judges that some inflation risks remain."
The timing of any additional firming that may be needed would depend on the outlook for the economy, it said.
US crude oil prices have plummeted from a record high $78.40 a barrel in mid-July to near $60 today.