The Fed Holds Rates Steady, Signals Possible Delay in Cuts
The Federal Reserve kept interest rates unchanged on Wednesday, indicating a possible delay in the anticipated rate cuts due to recent disappointing inflation data.
Fed Chair Jerome Powell acknowledged that inflation remains high and progress in bringing it down has been slower than expected. He stated that gaining greater confidence in the inflation trajectory will likely take longer than previously anticipated.
Despite the delay, Powell still expects inflation to ease over the course of the year. However, his confidence in this forecast has been lowered due to recent data.
The Fed's policy statement reiterated that rate cuts are not expected until the central bank gains greater confidence that inflation is moving sustainably towards its 2% target. However, the statement also acknowledged that progress towards this goal has stalled in recent months.
The Fed also announced a reduction in the pace of its balance sheet reduction starting in June, allowing only $25 billion in Treasury bonds to run off each month compared to the current $60 billion. This move aims to prevent a shortage of reserves in the financial system.
While the Fed's policy statement maintained its overall assessment of economic growth, it acknowledged that inflation remains elevated. This suggests that the phrase "inflation remains elevated" may need to be removed before any rate cuts are implemented.