Fed keeps rates steady as it notes ‘lack of further progress’ on inflation

WASHINGTON – The
Federal
Reserve
on
Wednesday
held
its
ground
on
interest
rates,
again
deciding
not
to
cut
as
it
continues
a
battle
with
inflation
that
has
grown
more
difficult
lately.

In
a
widely
expected
move,
the
U.S.
central
bank
kept
its
benchmark
short-term
borrowing
rate
in
a
targeted
range
between
5.25%-5.50%.
The
federal
funds
rate
has
been
at
that
level
since
July
2023,
when
the
Fed
last
hiked
and
took
the
range
to
its
highest
level
in
more
than
two
decades.

The
rate-setting
Federal
Open
Market
Committee
did
vote
to
ease
the
pace
at
which
it
is
reducing
bond
holdings
on
the
central
bank’s
mammoth
balance
sheet,
in
what
could
be
viewed
as
an
incremental
loosening
of
monetary
policy.

With
its
decision
to
hold
the
line
on
rates,
the
committee
in
its
post-meeting
statement
noted
a “lack
of
further
progress”
in
getting
inflation
back
down
to
its
2%
target.

“The
Committee
does
not
expect
it
will
be
appropriate
to
reduce
the
target
range
until
it
has
gained
greater
confidence
that
inflation
is
moving
sustainably
toward
2
percent,”

the
statement
said,
reiterating
language
it
had
used
after
the
January
and
March
meetings.

The
statement
also
altered
its
characterization
of
its
progress
toward
its
dual
mandate
of
stable
prices
and
full
employment.
The
new
language
hedges
a
bit,
saying
the
risks
of
achieving
both “have
moved
toward
better
balance
over
the
past
year.”
Previous
statements
said
the
risks “are
moving
into
better
balance.”

Beyond
that,
the
statement
was
little
changed,
with
economic
growth
characterized
as
moving
at “a
solid
pace,”
amid “strong”
job
gains
and “low”
unemployment.

Chair

Jerome
Powell
during

the
news
conference
following
the
decision
expanded
on
the
idea
that
prices
are
still
rising
too
quickly.

“Inflation
is
still
too
high,”
he
said. “Further
progress
in
bringing
it
down
is
not
assured
and
the
path
forward
is
uncertain.”

However,
investors
were
pleased
by
Powell’s
comment
that
Fed’s
next
move
was “unlikely”
to
be
a
rate
hike.
The

Dow
Jones
Industrial
Average
jumped
after
the
remarks,
and
rose
as
much
as
500
points.
He
also
stressed
the
need
for
the
committee
to
make
its
decisions “meeting
by
meeting.”

On
the
balance
sheet,
the
committee
said
that
beginning
in
June
it
will
slow
the
pace
at
which
it
is
allowing
maturing
bond
proceeds
to
roll
off
without
reinvesting
them.

In
a
program
begun
in
June
2022
and
nicknamed “quantitative
tightening,”
the
Fed
had
been
allowing
up
to
$95
billion
a
month
in
proceeds
from
maturing
Treasurys
and
mortgage-backed
securities
to
roll
off
each
month.
The
process
has
resulted
in
the
central
bank
balance
sheet
to
come
down
to
about
$7.4
trillion,
or
$1.5
trillion
less
than
its
peak
around
mid-2022.

Under
the
new
plan,
the
Fed
will
reduce
the
monthly
cap
on
Treasurys
to
$25
billion
from
$60
billion.
That
would
put
the
annual
reduction
in
holdings
at
$300
billion,
compared
with
$720
billion
from
when
the
program
began
in
June
2022.
The
potential
mortgage
roll-off
would
be
unchanged
at
$25
billion
a
month,
a
level
that
has
only
been
hit
on
rare
occasions.

QT
was
one
way
the
Fed
used
to
tighten
conditions
after
inflation
surged,
as
it
backed
away
from
its
role
of
assuring
the
flow
of
liquidity
through
the
financial
system
by
buying
and
holding
large
amounts
of
Treasury
and
agency
debt.
The
reduction
of
the
balance
sheet
roll-off,
then,
can
be
seen
as
a
slight
easing
measure.

The
funds
rate
sets
what
banks
charge
each
other
for
overnight
lending
but
feeds
into
many
other
consumer
debt
products.
The
Fed
uses
interest
rates
to
control
the
flow
of
money,
with
the
intent
that
higher
rates
will
dampen
demand
and
thus
help
reduce
prices.

However,
consumers
have
continued
to
spend,
running
up
credit
indebtedness
and
decreasing
savings
levels
as
stubbornly
high
prices
eat
away
at
household
finances.
Powell
has
repeatedly
cited
the
pernicious
effects
of
inflation,

particularly
for
those
at
the
lower-income
levels.

Though
price
increases
are
well
off
their
peak
in
mid-2022,
most
data
so
far
in
2024
has
shown
that
inflation
is
holding
well
above
the
Fed’s
2%
annual
target.
The
central
bank’s
main
gauge
shows

inflation
running
at
a
2.7%
annual
rate
–
2.8%
when
excluding
food
and
energy
in
the
critical
core
measure
that
the
Fed
especially
focuses
on
as
a
signal
for
longer-term
trends.

At
the
same
time,

gross
domestic
product
grew
at
a
less-than-expected
1.6%
annualized
pace
in
the
first
quarter,
raising
concerns
over
the

potential
for
stagflation
with
high
inflation
and
slow
growth.

Most
recently,
the
Labor
Department’s

employment
cost
index
this
week
posted
its
biggest
quarterly
increase
in
a
year,
sending
another
jolt
to
financial
markets.

Consequently,
traders
have
had
to
reprice
their
expectations
for
rates
in
a
dramatic
fashion.
Where
the
year
started
with
markets
pricing
in
at
least
six
interest
rate
cuts
that
were
supposed
to
have
started
in
March,
the
outlook
now
is
for
just
one,
and
likely
not
coming
until
near
the
end
of
the
year.

Fed
officials
have
shown
near
unanimity
in
their
calls
for
patience
on
easing
monetary
policy
as
they
look
for
confirmation
that
inflation
is
heading
comfortably
back
to
target.
One
or
two
officials
even
have
mentioned
the
possibility
of
a
rate
increase
should
the
data
not
cooperate.
Atlanta
Fed
President
Raphael
Bostic
was
the
first
to
specifically
say

he
only
expects
one
rate
cut
this
year,
likely
in
the
fourth
quarter.

In
March,
FOMC
members
penciled
in
three
rate
cuts
this
year,
assuming
quarter
percentage
point
intervals,
and
won’t
get
a
chance
to
update
that
call
until
the
June
11-12
meeting. 

Correction:
The
Federal
Reserve
kept
its
benchmark
short-term
borrowing
rate
in
a
targeted
range
between
5.25%-5.50%.
An
earlier
version
misstated
the
range.

The
Fed’s
next
meeting
is
June
11-12.
An
earlier
version
misstated
the
date.