Fed Keeps Rates Unchanged, Noting Progress on Inflation Has Stalled

Federal Reserve officials agreed on Wednesday to hold interest rates steady for the sixth consecutive meeting, signaling that they are willing to keep rates at the highest level in more than two decades for longer than previously expected and noting that progress on bringing down inflation has stalled.

The central bank left its benchmark federal funds rate unchanged in a range between 5.25 percent and 5.5 percent, as it awaits more evidence that inflation is sustainably falling to its two percent target.

The Fed last raised the fed funds rate in July, with Fed chairman Jerome Powell saying at the time that it was too soon to tell whether inflation was cooling enough to rule out further hikes. At the following meeting in September, the projections of Fed officials suggested that the Fed might raise rates one more time before the end of the year.

That changed two meetings later in December when the Fed signaled that it was preparing to cut rates three times in 2024. Markets moved even further, reflecting an expectation for twice as many cuts.

In January, the Fed sought to moderate those expectations by saying that rate cuts were not imminent and that officials needed more convincing evidence that inflation was returning to the Fed’s target. In the months that followed, inflation re-ignited despite rates staying at a level that Fed officials believe are high enough to restrain the economy.

The Fed’s preferred inflation gauge, the personal consumption expenditures price index, rose at an annualized rate of 3.4 percent in the first quarter, nearly double the 1.8 percent pace recorded in the fourth quarter of last year. Core PCE inflation, which excludes the more volatile costs of food and energy, climbed 3.7 percent in the first three months of the year, a big step up from the fourth quarter’s 2 percent.

Wednesday’s statement acknowledged the upward thrust of inflation.

“Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective,” the Fed said in its official statement following the two-day meeting of the Federal Open Market Committee, the central bank’s monetary policy board.