Federal Reserve officials decided to maintain interest rates for the sixth consecutive meeting, indicating that they are willing to keep rates at the highest level in over two decades for a longer period than previously anticipated. They noted that progress in reducing inflation has come to a halt.
The central bank kept its benchmark federal funds rate steady in a range between 5.25 percent and 5.5 percent, as it waits for more evidence that inflation is consistently decreasing towards its two percent target.
After raising the fed funds rate in July, Fed Chairman Jerome Powell mentioned that it was too early to determine if inflation was cooling enough to rule out additional hikes. However, projections from Fed officials in September suggested a possible rate increase before the end of the year.
Fast forward to December, when the Fed indicated its readiness to decrease rates three times in 2024. This surprised the markets, leading to expectations for even more rate cuts.
In January, the Fed tried to manage these expectations by stating that rate cuts were not imminent and that more concrete evidence was needed to confirm inflation returning to the Fed’s target. Despite this, inflation reignited in the following months despite rates remaining high enough to curb the economy.
The Fed’s preferred inflation measure, the personal consumption expenditures price index, increased by 3.4 percent annually in the first quarter, almost double the pace from the previous quarter. Core PCE inflation, which excludes volatile food and energy costs, rose by 3.7 percent in the first three months of the year, a significant jump from the previous quarter.
In their statement on Wednesday, the Fed acknowledged the persistent rise in inflation. They mentioned that while inflation has decreased over the past year, it remains elevated with no further progress towards the Committee’s 2 percent inflation goal.
