US Fed likely to pause rate hikes and raise growth forecast

Analysts expect the US Federal Reserve to pause interest rate hikes as the central bank looks to tame inflation while avoiding a recession, despite a recent energy-fueled rise in consumer prices.

The decision by the interest rate-setting Federal Open Market Committee (FOMC) will be published at 2:00 pm (1800 GMT) on Wednesday, along with updated economic forecasts.

After 11 interest rate hikes since March last year, inflation has fallen sharply but remains stuck stubbornly above the Fed's long-run target of two percent per year - keeping pressure on officials to consider further policy action.

Despite rising slightly due to increased energy costs, inflation remains well below last year's peak, while economic growth remains robust and the unemployment rate sits close to record lows - raising hopes the Fed can slow price increases without triggering a downturn.

The Fed's rate decision will be followed half an hour later by a press conference with Fed Chair Jerome Powell, which will be closely watched for hints on the path of future rate decisions.

Sitting tight

That would leave the Fed's key lending rate at its current range between 5.25 and 5.50 percent - a 22-year high.

Traders currently see it as 99 percent likely that the Fed will hold off on hiking interest rates on Wednesday, and a roughly 70 percent chance it will vote to do the same at the next FOMC meeting in November, according to data from CME Group.

Policymakers on the FOMC are looking to keep the country on what Chicago Fed President Austan Goolsbee calls the "golden path," attempting to slow down inflation while averting a surge in unemployment and a major economic slowdown.

Analysts at Goldman Sachs recently cut their expectation of a recession in the United States from 20 percent down to 15 percent, while other economists - including those in the Fed's research team - say they no longer expect the US economy to contract this year.

Revision to growth

Alongside its interest rate decision, the Fed will also publish updated forecasts for a range of economic indicators, from inflation to growth, as well as with FOMC members' expectations of future interest rate policy.

Analysts will be closely analyzing these forecasts for signs of whether policymakers continue signalling they expect interest rates to rise higher than current levels - as they did in June - and for how long they think rates should remain high to bring inflation firmly back down to target.

They also expect the Fed to significantly raise its economic growth forecast for 2023 from its last update in June due to stronger-than-expected economic output.