The Federal Reserve left interest rates unchanged on Wednesday and reiterated plans to hold rates steady, noting there has been a lack of further progress on inflation returning to its 2% target.
The central bank voted to keep its benchmark interest rate in a range of 5.25%-5.50%, a 23-year high, at the conclusion of its two-day policy meeting. The fed funds rate has been in this range since July 2023.
In a policy statement, Fed officials said, “In recent months, there has been a lack of further progress towards the committee’s 2% inflation objective.” Officials reiterated more clarity in the outlook for inflation returning to target will be needed before cutting rates.
“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 read.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Previously, the Fed had suggested it would be appropriate to cut rates “at some point” this year.
In its statement Wednesday, the Fed said, “risks to achieving its employment and inflation goals have moved toward better balance over the past year.” The FOMC characterized the economic outlook as “uncertain.”
Since issuing forecasts in March that three interest rates of 0.25% each could be warranted this year, Fed officials have publicly muddied the outlook.
The central bank will release an updated set of economic projections at the conclusion of its policy meeting next month.
Separately, the Fed on Wednesday announced changes to its program for reducing the size of its balance sheet.
Beginning June 1, the Fed will slow the pace Treasuries rolling off its balance sheet on a monthly basis to $25 billion from $60 billion and maintain the cap on mortgage-backed securities rolling off $35 billion a month. The central bank will reinvest any principal payments in excess of this cap into Treasury securities.
The decision to taper the pace of the balance sheet runoff comes as officials seek to avoid any disruptions to the plumbing of financial markets like that which disrupted markets back in 2019. The Fed has said the balance sheet is separate from setting interest rates.
The decision to hold rates at current levels comes on the heels of three straight months of higher-than-expected inflation readings.
The Fed’s preferred inflation gauge, the “core” personal consumption expenditures index, which excludes volatile food and energy prices, rose at a clip of 2.8% year over year in March.
This was the same annual increase seen in February and a tenth of a percent higher than expected. The three-month annualized reading on core PCE jumped to 4.4%, more than double the Fed’s target.
In its statement on Wednesday, the central bank said, “The Committee is strongly committed to returning inflation to its 2 percent objective.”
The decision was unanimous.
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