U.S. Federal Reserve Leaves Interest Rates Unchanged Despite Strong Economy

The U.S. Federal Reserve left interest rates unchanged on Thursday despite strong economic growth and job gains in recent months.

In announcing its decision, the U.S. central bank said "economic activity has been rising at a strong rate" and job gains "have been strong." However, despite a robust domestic economy, the Federal Reserve stated that it planned to proceed with "further gradual" rate increases moving forward, leaving many financial observers to forecast a coming interest rate hike when the central bank next convenes in December.

Risks to the outlook appear "roughly balanced," the Federal Open Market Committee said following a two day meeting in Washington, D.C. Inflation expectations, which have slipped slightly in recent weeks, were described as "little changed, on balance."

"Absent anything new between now and the last meeting of the year, they’ll continue on with another 25-basis-point increase" in December, said James Kahn, an economics professor and former Vice-President at the New York Fed, in an interview with BNN Bloomberg. "The language is designed to try to not look too far ahead."

By keeping the door open to a fourth 2018 interest rate hike in December, the central bank is sticking to its gradual upward path, trying to prolong the second-longest U.S. expansion on record. The unanimous 9-0 decision to leave interest rates unchanged keeps the benchmark federal funds rate in a target range of 2% to 2.25%, following eight quarter-point hikes since late 2015.

The interest rate the Federal Reserve pays banks on excess reserves – a tool for keeping the effective funds rate within the Fed’s target range – remains at 2.2%. Stocks slipped and the U.S. dollar extended gains after the decision was announced late Thursday, with the S&P 500 Index closing 0.3% lower at 2,806.83. What's more, 10-year Treasury yields were slightly higher at 3.24% at 4:15 p.m. in New York trading.