No changes to the rate, highlights a “lack of further progress” on inflation.
The Federal Reserve (Fed) made the unanimous and widely expected decision to once again keep the target range for the federal funds rate unchanged at 5.25% – 5.50%, its highest level in the past 22 years. Since July of last year, the benchmark rate has remained unchanged. This decision comes in a context of accelerating inflation during the current year, placing it at 3.5% annually in March (3.8% annually excluding components with higher volatility such as food and energy), up from 3.2% in February.
On the other hand, the statement described that the latest employment indicators have shown solid performance, while inflation has decreased over the past year, although it remains elevated. In that sense, it was highlighted that, in recent months, there has been a lack of additional progress toward the Committee’s 2% inflation target. Therefore, it was reiterated that it is not expected to be appropriate to reduce the target range of the benchmark rate until there is greater confidence that inflation is moving sustainably toward its goal, and it will remain highly attentive to inflation risks. Despite the above, the Committee considers that the risks to achieving its employment and inflation objectives have moved towards a better balance in the last year.
Finally, an adjustment to its program of reducing holdings of Treasury bonds, agency debt, and agency mortgage-backed securities known as “Quantitative Tightening” was announced. Starting on June 1, only US$25 billion in Treasury bonds will be allowed to run off each month, compared to the current US$60 billion. Mortgage-backed securities will continue to run off by up to US$35 billion monthly.
During his press conference, Jerome Powell primarily highlighted that he considers it unlikely that the next interest rate move will be an increase, emphasizing that for now, that scenario appears improbable.
Evolution in the number of expected rate cuts for the federal funds rate
Source: Raymond James