The Federal Open Market Committee (FOMC) decided to keep the federal funds interest rate where it has been since last July, in the 5.25%-to-5.5% range. Of course, that came as no surprise to many.
In addition to noting that the economy has continued to expand at a “solid pace,” job gains have remained strong, and unemployment has stayed low, the committee added that “there has been a lack of further progress toward the… 2% inflation objective” in recent months.
The FOMC is referring to the fact that both the Consumer Price Index and Personal Consumption Expenditures (PCE) index ticked higher in March. The CPI rose to 3.5% in March from 3.2% in February, while the PCE went to 2.7% in March from 2.5% in February.
“The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the committee remains highly attentive to inflation risks,” the FOMC said in a statement.
The Federal Reserve said it won’t reduce the target range until it has “gained greater confidence that inflation is moving sustainably toward 2%. Fed Chair Jerome Powell added during the press conference that followed the FOMC’s release that gaining that confidence is “likely to take longer than expected.”
The committee added that it will slow the pace of decline of its Treasury securities holdings starting in June by reducing the monthly redemption cap from $60 billion to $25 billion. However, it will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and reinvest any principal payments in excess of this cap into Treasury securities.
In typical boilerplate fashion, the committee said it will continue to monitor incoming economic information and be prepared to adjust its stance if risks emerge that could impede its goals.
Few had expected rate cuts in May, even at the beginning of the year, when optimism was higher. The consensus target had always been June or July for the first cut.
The Fed has not yet updated its summary of projections for interest rates and other economic metrics, but the last one in March called for three rate cuts in 2024. It will be interesting to see if the dot plot changes after this meeting. Many analysts believe that the interest-rate cuts may be delayed until at least September given the recent increases in inflation.
Powell did not suggest when interest rates might be cut, but in response to a question, he did say that it is “unlikely that the next policy move would be a hike.”
The market seemed unbothered, as the S&P 500 remained mostly the same after the Fedʻs statement was released at 2 p.m. Eastern.
