Fed Holds Rates Steady, Noting Lack of Progress on Inflation

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Federal Reserve officials left interest rates unchanged and signaled that they were wary about how stubborn inflation was proving, paving the way for a longer period of high borrowing costs.

The Fed held rates steady at 5.3 percent on Wednesday, leaving them at a more than two-decade high, where they have been set since July. Central bankers reiterated that they needed "greater confidence" that inflation was coming down before reducing them.

"Readings on inflation have come in above expectations," Jerome H. Powell, the Fed chair, said at a news conference after the release of the central bank's rate decision.

Video

transcript

transcript

'Lack of Further Progress' on Inflation Keeps Interest Rates High

Jerome H. Powell, the Fed chair, said that the central bank needed "greater confidence" that inflation was coming down before it decided to cut interest rates, which are at a two-decade high.

Today, the F.O.M.C. decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings, though, at a slower pace. Our restrictive stance of monetary policy has been putting downward pressure on economic activity and inflation, and the risks to achieving our employment and inflation goals have moved toward better balance over the past year. However, in recent months, inflation has shown a lack of further progress toward our 2 percent objective, and we remain highly attentive to inflation risks. We've stated that we do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected.

The Fed stands at a complicated economic juncture. After months of rapid cooling, inflation has proved surprisingly sticky in early 2024. The Fed's preferred inflation index has made little progress since December, and although it is down sharply from its 7.1 percent high in 2022, its current 2.7 percent is still well above the Fed's 2 percent goal. That calls into question how soon and how much officials will be able to lower interest rates.

"What we've said is that we need to be more confident" that inflation is coming down sufficiently and sustainably before cutting rates, Mr. Powell said. "It appears that it's going to take longer for us to reach that point of confidence."

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