The Federal Reserve kept its benchmark lending rate unchanged at a two-decade high, but suggested at least one more increase is likely between now and the end of the year as inflation remains elevated and the economy continues to perform.
The Fed's Open Markets Committee held its key policy rate at between 5.25% and 5.5%, the highest in 22 years, in a move that was widely expected from markets following a quarter point rate hike in July.
The Fed's new Summary of Economic projections, known as the dot plots, now calls for GDP stronger growth of 2.1% this year, more than double its prior forecast, with the forecast for unemployment coming down to 3.9% from a prior estimate of 4.1%.
In terms of inflation, the Fed's dot plots suggests rate-setters are seeing core personal consumption expenditures inflation, the bank's preferred measure, easing to 3.7% this year from its prior estimate of 3.9%.
The dots also suggest that 12 members of the FOMC see at least one more rate cut, with 7 indicating the need for a pause in order to determine the impact of past hikes on the economy.
"We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective," Fed Chairman Jerome Powell told reporters during his regular press conference in Washington.
"We remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well anchored," he added. "Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run."
For 2024, the Fed sees only 50 basis points, or half a percentage point, in potential rate cuts, down from the full percent indicated in the June projections.
"The decrease in the number of cuts in 2024 is one of the more telling changes this month. It means (combined with the increase in growth expectations and cut in unemployment rate for that year) that the Fed is increasingly confident that they can pull off a soft landing and that the economy can withstand higher rates for longer," said Andrew Patterson, senior economist at Vanguard.
U.S. stocks pared earlier gains immediately following the Fed decision, with the S&P 500 marked 29 points lower, or 0.82%, lower on the session while the Dow Jones Industrial Average was up 33 points. The tech-focused Nasdaq was marked 131 points lower.
Benchmark 10-year Treasury note yields were marked 4 basis points higher at 4.357% while 2-year notes jumped 8 basis points to 5.142%.
The U.S. dollar index, meanwhile, was marked 0.13% lower at 105.006 against a basket of six global currency peers.
CME Group's FedWatch now suggests a 24% chance that the Fed will lift rate by 25 basis points (0.25 percentage point), to between 5.5% to 5.75% at its next policy meeting in November, with the odds for a December hike pegged at 37.2%.
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