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The Federal Reserve signaled fresh concerns about inflation while indicating it was likely to keep borrowing costs elevated for longer rather than raising them again.
Officials unanimously decided Wednesday to leave the target range for the benchmark federal funds rate at 5.25% to 5.5% — where it’s been since July — following data that pointed to lingering price pressures in the US economy. They also reaffirmed the need for more evidence that price gains are cooling before cutting interest rates from a two-decade high.
“So far this year, the data have not given us that greater confidence in particular” that rate cuts are appropriate, Chair Jerome Powell said at a press conference following the two-day meeting in Washington. “Readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected.”
Powell said it’s unlikely that the Fed’s next move would be to raise interest rates, saying officials would need to see persuasive evidence that policy is not tight enough to bring inflation back toward the central bank’s 2% target. “We don’t see evidence supporting that conclusion,” he added.
Those remarks soothed investors who had worried the Fed might react more aggressively to signs that inflation progress has stalled. Stocks and Treasuries rose, and futures markets showed a slightly greater chance policymakers will lower rates twice this year, instead of the one cut expected before the meeting.
Still, Powell stopped short of signaling rate cuts were likely this year or that rates were at a peak, which he has said previously.
In a statement Wednesday at the conclusion of the meeting, the Federal Open Market Committee said “there has been a lack of further progress toward the committee’s 2% inflation objective” in recent months. That represented an addition to phrasing introduced in December saying that inflation “has eased over the past year but remains elevated.”
In another change, the Fed said that risks to achieving its employment and inflation goals “have moved toward better balance over the past year,” referring to the progress in the past tense. The previous statement said the goals were “moving into better balance.”
Officials also outlined plans to slow the pace at which the central bank is shrinking its asset portfolio. The Fed will cut the cap on runoff for Treasuries to $25 billion a month from $60 billion beginning in June, in a bid to reduce the risk of financial-market turbulence that struck during the previous round of balance-sheet trimming in 2019.
The cap for mortgage-backed securities remained unchanged at $35 billion, though the Fed will in June reinvest any principal payments above the cap into Treasuries instead of MBS.
On the balance sheet, policymakers generally agreed at the Fed’s previous meeting in March that it would be appropriate to take a cautious approach toward further runoff given market turmoil in 2019, minutes from the meeting showed.
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