The Federal Open Market Committee (FOMC) voted to hold their federal funds rate target in the 5.25 to 5.5 percent range on Tuesday. The move was widely expected, with financial markets pricing in a mere 1.8 percent chance of a rate hike prior to the announcement. But it marked a departure from earlier guidance. In September, twelve of nineteen FOMC members projected that the federal funds rate would exceed 5.5 percent by the end of 2023.

“While we believe that our policy rate is at or near its peak for this tightening cycle,” Federal Reserve Chair Jerome Powell said at the post-meeting press conference, “the economy has surprised forecasters in many ways since the pandemic and ongoing progress toward our 2-percent inflation target is not assured. We are prepared to tighten policy further if appropriate.” 

Powell added that, although FOMC members “do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table.”

Inflation has declined over the last few months, following an uptick in August. The Consumer Price Index grew at a continuously compounding annual rate of 1.2 percent in November, down from 7.6 percent in August. Core CPI, which excludes volatile food and energy prices, grew 3.4 percent in November.