A surging economy has complicated the fight to cool price increases.
The Federal Reserve left interest rates unchanged on Wednesday, despite stubborn inflation that has resisted the central bank's fight to cool price increases.
The move allows previous rate increases to take greater hold of the economy and grants the central bank time to assess whether another hike will be necessary.
Once bemoaned as a source of recession worries, the U.S. economy has become a wellspring of good news: blistering growth, robust hiring and consumers opening their wallets for everything from concert tickets to bar tabs.
The strong performance complicates the fight to dial back inflation, posing a quandary for the Fed.
Since last year, the Fed has raised its benchmark interest rate at the fastest pace in more than two decades, seeking to slash price hikes by slowing the economy and reducing consumer demand.
In theory, the economy should eventually falter as it becomes more expensive for businesses and consumers to borrow. But the economy has so far resisted a cooldown.
Inflation stands well below its peak last year of over 9%, but progress has stalled in recent months and price growth remains more than a percentage point higher than the central bank's target rate.
Gross domestic product data released last week showed that the U.S. economy expanded at a 4.9% annualized rate over three months ending in September. That breakneck pace more than doubled growth over the previous quarter and reinforced other recent indicators of sturdy performance.
A blockbuster jobs report last month exceeded economist expectations by nearly twofold. Consumer spending, which accounts for nearly three-quarters of U.S. economic activity, surged in September, government data showed.
Speaking at a luncheon in New York City last month, Fed Chair Jerome Powell noted the unexpectedly strong economic performance in recent months.
"We are attentive to recent data showing the resilience of economic growth and demand for labor," Powell said, adding that such growth could "put further progress on inflation at risk."
Recent economic growth, however, belies an alarm sounded by one of the most important economic indicators: the 10-year Treasury yield.
A rapid rise in U.S. government bond yields over recent weeks has elevated long-term borrowing costs for consumers seeking mortgage loans and corporations pursuing funds to expand their businesses.
The onset of some financial pain is exemplified by the housing market, where the average interest rate for a 30-year fixed mortgage briefly exceeded 8% on Monday, Mortgage News Daily data shows.
High mortgage rates have dramatically slowed the housing market, since homebuyers have balked at the stiff borrowing costs and home sellers have opted to stay put with mortgages that lock them into comparatively low rates.
Mortgage applications have fallen to their lowest level since 1996, the Mortgage Brokers Association said last month.
The Fed may consider the sharp increase in bond yields as indication that a string of previous rate hikes has begun to make its way through the economy, rendering an additional rate hike unnecessary, at least for now.
But the central bank hinted at its most recent meeting in September that it expects to raise rates one more time this year, according to projections included alongside a statement last month from the Federal Open Market Committee, the Fed's decision-making body on interest rates.
The benchmark interest rate currently stands at a range 5.25% to 5.5%, as a result of a near-historic series of rate increases.
The Fed plans to "proceed carefully" with its interest rate policy, Powell said last month, citing a "range of uncertainties."
Still, he added, the central bank will prioritize its goal of bringing inflation down to normal levels. "My colleagues and I remain resolute," he said.