The Fed announced that it would keep its policy rate stable a few minutes ago, but it also signaled that another rate hike is due this year. The markets dipped on this news.
Economic activity has proved way more resilient than what markets and economists expected this year, which is the main reason why the Fed hasn't yet ended its campaign against inflation. Inflation has also proved to be more resilient, however, as the PPI increase from last year was 3.7% as of August, more than the July inflation.
However, as the Fed is coming to the end of its tightening, whether it will be able to hold the soft landing is a topic of debate. This series of rate hikes has been one of the fastest ever, but the economy is still growing which signals that the Fed is close to a soft landing, as inflation came down from the 10% highs. However, the rate cuts in the following year are critical now. If the Fed holds rates too high for too long, that could plunge the economy into a recession. On the other hand, if they let go too soon and call an end to inflation, it could shoot back up again. So they will be walking a tightrope for a longer while. The rising commodity prices definitely won't make the soft-landing easier, as they have a negative effect both on growth and inflation. It is almost impossible to see when the rate cuts will come now, because of the long and variable lags that monetary policy works with, but the rates are likely to stay high at least until next summer in my opinion.
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