WASHINGTON – The Federal Reserve on Wednesday held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
In a widely expected move, the U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%. The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
The rate-setting Federal Open Market Committee did vote to ease the pace at which it is reducing bond holdings on the central bank’s mammoth balance sheet, in what could be viewed as an incremental loosening of monetary policy.
With its decision to hold the line on rates, the committee in its post-meeting statement noted a “lack of further progress” in getting inflation back down to its 2% target.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said, reiterating language it had used after the January and March meetings.
The statement also altered its characterization of its progress toward its dual mandate of stable prices and full employment. The new language hedges a bit, saying the risks of achieving both “have moved toward better balance over the past year.” Previous statements said the risks “are moving into better balance.”
Beyond that, the statement was little changed, with economic growth characterized as moving at “a solid pace,” amid “strong” job gains and “low” unemployment.
Chair Jerome Powell during the news conference following the decision expanded on the idea that prices are still rising too quickly.
“Inflation is still too high,” he said. “Further progress in bringing it down is not assured and the path forward is uncertain.”
However, investors were pleased by Powell’s comment that Fed’s next move was “unlikely” to be a rate hike. The Dow Jones Industrial Average jumped after the remarks, and rose as much as 500 points. He also stressed the need for the committee to make its decisions “meeting by meeting.”
On the balance sheet, the committee said that beginning in June it will slow the pace at which it is allowing maturing bond proceeds to roll off without reinvesting them.
‘Quantitative tightening’
In a program begun in June 2022 and nicknamed “quantitative tightening,” the Fed had been allowing up to $95 billion a month in proceeds from maturing Treasurys and mortgage-backed securities to roll off each month. The process has resulted in the central bank balance sheet to come down to about $7.4 trillion, or $1.5 trillion less than its peak around mid-2022.
Under the new plan, the Fed will reduce the monthly cap on Treasurys to $25 billion from $60 billion. That would put the annual reduction in holdings at $300 billion, compared with $720 billion from when the program began in June 2022. The potential mortgage roll-off would be…
Read More: Fed rate decision May 2024: Fed holds rate steady
