Fed holds interest rates at 22-year high

WASHINGTON — The US Federal Reserve voted on Wednesday to hold interest rates at a 22-year high, dealing a blow to traders' sentiment as experts warn of harm to the economy under the current policy.

"We are prepared to raise rates further, if appropriate, and we intend to hold policy at a restrictive level until we're confident that inflation is moving sustainably toward our objective," Fed Chair Jerome Powell said in a news conference after the decision.

This dealt a blow to sentiment among traders, who have feared more restrictive measures following a string of data showing that 11 hikes in 18 months were not having the desired impact on inflation, which is still well above the bank's 2 percent target.

All three main indexes on Wall Street ended sharply lower, with Nasdaq losing more than 1 percent as technology companies took a hit owing to their susceptibility to higher borrowing costs.

Asia followed suit. Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Mumbai, Jakarta and Singapore all retreated.

Stephen Innes, managing partner at SPI Asset Management, said while the Fed was "more self-assured that it can achieve a soft landing and that the economy can sustain higher rates for a longer period", traders wanted reassurance it can handle the tighter policy environment without significant pain.

"In the near term, there is a possibility of the opposite happening," he warned.

"Growth might soften in the fourth quarter due to factors such as the resumption of student loan repayments, the UAW (auto) strike, and a potential federal government shutdown.

"How temporary this could be or whether these events tip the economic scales to recession could be the roller-coaster ride from here to Christmas."

The Fed's much-anticipated meeting finished with borrowing costs held at a two-decade high of key lending rate between 5.25 and 5.50 percent, Agence France-Presse reported.

Fed officials expect to cut interest rates just twice next year, fewer than the four rate cuts they had forecast in June, The Associated Press reported. They predict that their key short-term rate will still be 5.1 percent at the end of 2024 — higher than it was from the 2008-09 Great Recession until May.

Under current rates, millions of US citizens are already struggling with the impact of the Fed's existing hikes on mortgages and other loans, as analysts worry about the long-term impact on inflation and economy.

Surging prices

Despite some progress on inflation, gas prices have lurched higher again, reaching a national average of $3.88 a gallon as of Tuesday. Oil prices have surged more than 12 percent just over the past month.

While overall inflation has declined, the costs of some services — from auto insurance to car repairs, veterinary services and hair salons — are still climbing faster than they were before the COVID-19 pandemic, AP reported.

Some factors are threatening to reignite inflation, weaken the economy, or both. Rising oil prices, for example, are making gasoline steadily more expensive, observers say. Should that trend continue, it would worsen inflation and leave consumers with less money to spend.

The United Auto Workers union strikes against the Big Three US automakers could eventually further inflate vehicle prices, AP reported.

Agencies via Xinhua