Federal Reserve officials agreed on Wednesday to keep interest rates on hold for the sixth straight meeting, signaling they intend to keep interest rates at their highest levels in more than 20 years for longer than previously expected and slowing inflation. He pointed out that progress in curbing the outbreak has stalled.
The central bank kept its benchmark federal funds rate unchanged at 5.25% to 5.5% as it awaited further evidence that inflation was falling sustainably to its 2% target.
The Fed last raised the federal funds rate in July, when Fed Chairman Jerome Powell said it was too early to tell whether inflation had cooled enough to rule out another hike. At its subsequent meeting in September, Fed officials’ forecasts suggested the Fed could raise rates again before the end of the year.
That all changed in two meetings in late December, when the Fed signaled it was preparing three rate cuts in 2024. Markets moved further, reflecting expectations of a doubling of rate cuts.
The Fed sought to temper those expectations in January, saying a rate cut was not imminent and officials needed more convincing evidence that inflation was returning to the Fed’s target. In the months that followed, inflation flared up again, even as interest rates remained at levels that Fed officials believed were high enough to rein in the economy.
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditure Price Index, rose at an annual rate of 3.4% in the first quarter, nearly double the 1.8% pace recorded in the fourth quarter of last year. Core PCE inflation, which excludes more volatile food and energy costs, rose 3.7% in the first three months of the year, up sharply from 2% in the fourth quarter.
Wednesday’s statement acknowledged the upward trend in inflation.
“Inflation has eased over the past year but remains high. There has been no further progress toward the committee’s 2% inflation target in recent months,” the central bank’s monetary policy committee said. This was said in an official statement after a two-day meeting of the Federal Open Market Committee.
