The Federal Reserve stressed on Wednesday that inflation has remained stubbornly high in recent months and said it doesn’t plan to chop rates of interest until it has “greater confidence” that price increases are slowing sustainably to its 2% goal.
The Fed issued its decision in a single opinion after its last meeting where it left its key rate of interest at a two-decade high of 5.3%. Several unexpected reports on prices and economic growth have recently undermined the Fed’s belief that inflation is steadily declining. The combination of high rates of interest and protracted inflation has also emerged as a possible threat to President Joe Biden’s re-election.
“There has been no further progress toward (the Fed’s) 2% inflation target in recent months,” the statement said.
The central bank’s message on Wednesday reflects an abrupt change in its timetable for rates of interest. At their last meeting on March 20, Fed policymakers had forecast three rate of interest cuts in 2024, probably starting in June. Fed rate of interest cuts would result in lower borrowing costs for consumers and businesses over time, including for mortgages, auto loans and bank cards.
However, with inflation remaining high, financial markets are only expecting a rate cut this yr, in November, based on futures prices tracked by CME FedWatch.
The Fed’s more cautious outlook comes from three months of information that pointed to stubborn inflation pressures and robust consumer spending. Inflation has cooled to 2.7% from a peak of seven.1% (based on the Fed’s preferred measure) as supply chains have eased and the price of some goods has even fallen.
But average prices are still well above pre-pandemic levels, and costs for services starting from apartment rent and health care to restaurant meals and automobile insurance proceed to rise. With the presidential election still six months away, many Americans have expressed dissatisfaction with the economy, particularly the pace of price increases.
On Wednesday, the Fed also said it might slow the pace at which it’ll unwind one in every of its biggest measures of the COVID era: the acquisition of trillions of dollars of Treasuries and mortgage-backed bonds, an try to stabilize financial markets and last more to maintain. Term rates of interest low.
The Fed is now allowing $95 billion of those securities to mature every month without replacing them. Its holdings have fallen to about $7.4 trillion, down from $8.9 trillion in June 2022, when the corporate began reducing. On Wednesday, the Fed said it would scale back its holdings more slowly in June, allowing a complete of $60 billion in bonds to run out every month.
