The Federal Reserve on Wednesday kept interest rates on hold and delayed the start of rate cuts until possibly December, despite a major report showing inflation had fallen more than expected.
in Set Projection That would likely negate any chance of sharply lowering borrowing costs, which are at their highest in 23 years, before the Nov. 5 presidential election, prompting Fed officials to recalibrate to one 0.25 percentage point cut from three they had suggested in March.
“We need better data to give us more confidence that inflation is sustainably heading toward 2 percent,” Chairman Jerome Powell said at a news conference after the Fed meeting.
“Once we feel more confident, we can consider easing policy.”
Powell’s comments came hours after the Labor Department said the consumer price index rose 3.3% year-over-year last month, down slightly from 3.4% in April. Economists had expected the CPI to be flat at 3.4%. Core inflation, which excludes volatile food and energy prices, rose 0.2%, also slightly below expectations.
“This is just one reading,” Powell said.
The Dow Jones Industrial Average surged more than 250 points after the CPI data was released but ended down 35 points, but the S&P 500 closed above 5,400 for the first time and the tech-heavy Nasdaq Composite also rose.
“The market is less interested in the economy and more interested in whether there will be two rate cuts this year or one,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The Fed is basically rearranging the deck chairs on rate cuts.”
Fed officials said the Fed has made “moderate” progress toward its 2 percent inflation goal in recent months, a more positive assessment than after the bank’s last meeting on May 1, when officials noted a lack of progress.
Still, the central bank made it clear that more is needed.As expected, the central bank left its policy rate unchanged at around 5.3%, where it has remained since July last year after raising rates 11 times in an attempt to rein in borrowing and spending to tame inflation that has hit a 40-year high.
The officials’ cut expectations reflect the individual projections of 19 policymakers. Eight of the officials expect two rate cuts. Seven expect one cut. Four of the policymakers expect no rate cuts this year, according to the Fed.
While rate cuts are likely to start later than September and proceed at a slower pace this year than investors expect, the Fed’s policy rate is expected to fall sharply next year, followed by a one percentage point cut in each of 2025 and 2026.
“We all agree that the Fed’s rate cut schedule will be data-driven,” Powell said at a news conference.
With post wire
