Fed keeps interest rates unchanged, says US economy 'strong'

The Federal Reserve kept short-term interest rates unchanged Wednesday, adding that U.S. economic growth has been strong.

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Following a rate hike in June, Fed officials voted unanimously to maintain the current federal funds rate of 1.75% to 2%. Inflation remained near the central bank’s 2% target, according to the Fed. In a statement, the Fed also noted strength in household spending and business investment, while unemployment remained low.

“Economic activity has been rising at a strong rate,” the central bank said at the conclusion of its two-day policy meeting.

The upbeat economic view, combined with robust GDP growth in the second quarter, helped cement expectations that the Fed will raise rates for a third time this year in September. In total, Fed policy makers have telegraphed four rate hikes in 2018.

“While standing pat in August, the Fed gave no sign of a pause in the path of policy tightening for the rest of 2018,” Nationwide Senior Economist Ben Ayers said in an email.

Traders have placed roughly 90% odds on a rate hike coming in September, according to the CME’s FedWatch Tool. The chances of another rate increase in December were 66%.

The Fed has gradually raised its benchmark interest rate in response to a strong labor market and rising inflation. The policy lifts borrowing costs for consumers, as interest rates on credit cards, mortgages and auto loans climb.