By Fergal McAlinden
01 May 2024
The Federal Reserve has decided to leave interest rates unchanged following its latest meeting today, staying the course on its wait-and-see approach amid signs of a still-resilient US economy and persistent inflation.
The central bank announced on Wednesday that it would hold its Federal Funds Rate in the range of 5.25% to 5.5% again, the sixth time in a row it has kept that trendsetting interest rate steady.
In its statement, the Fed noted that the economic outlook remained “uncertain” and highlighted a lack of progress towards its target inflation rate of 2%.
It also hinted at its readiness to begin hiking rates again if risks to its inflation goals emerge. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” it said.
Key inflation measures have ticked upwards in recent weeks, helping lower speculation of a possible imminent rate cut by the Fed. At last reading, the so-called core consumer price index, which excludes food and energy costs, had increased by 0.4% month-over-month and 3.8% on a yearly basis.
Job growth in the US, meanwhile, exceeded expectations in March as the labor market posted a solid all-round performance in the first quarter, suggesting continuing robustness despite a 15-month campaign of rate hikes by the Fed which only ended in July of last year.
Those developments have seen markets dial down the likelihood of a Fed cut – with some analysts even suggesting that a further hike could be on the way before the end of the year if inflation starts to balloon again.
In early April, Federal Reserve Bank of Dallas president Lorie Logan warned it was premature to consider lowering interest rates and expressed her growing concern that progress on bringing down inflation could stall.
“I believe it’s much too soon to think about cutting interest rates,” Logan, whose views are closely followed by market watchers, said. “I will need to see more of the uncertainty resolved about which economic path we’re on.”
She added that Fed officials should be ready to “respond appropriately” if inflation starts to tick upwards again.
The Fed is next scheduled to meet on interest rates from June 11-12, with four further meetings set to take place before the end of the year.
The Federal Reserve announced today that it will keep interest rates the same for the second time since beginning its current rate hike cycle aimed at taming inflation last March. The Fed projected that rates will remain higher over the next two years than previously expected, providing some unwelcome news for investors who have been hoping for rates to come down sooner rather than later.
Since last March, the Federal reserve raised the federal funds rate 11 times in an effort to control inflation by slowing the economy, bringing it up from the near-zero levels they hovered at beginning in early 2020. The federal funds rate only technically determines the interest rate at which banks can lend to each other but heavily influences the borrowing costs across the economy. The rise in rates came as the Fed tried to tackle high inflation. The consumer price index (a key economic growth indicator) peaked at 9.1% last June but came in at a more modest 3.7% last month, still well above the Fed’s 2% long-term target. The central bank’s battle on inflation seems to be working but remains far from over.
The Federal Reserve has hinted on one more .25% interest rate hike this year peaking in the 5.50%-5.75% range before starting to lower rates. The updated projections see the Fed funds target rate coming down to 5.1% by the end of next year, and to 3.9% by the end of 2025.
According to analysts, the economic projections released today (Wednesday, September 20) indicate “the Fed is more confident that they can pull off a soft landing and that the economy can withstand higher rates for longer.