The Federal Reserve on Wednesday held interest rates steady for the first time in 15 months, pausing its aggressive tightening campaign to assess how the economy is faring in the face of higher borrowing costs.
Policymakers have raised interest rates sharply over the past year, approving 10 straight rate hikes in hopes of crushing inflation and cooling the economy. In the span of just one year, interest rates surged from near-zero to a range of 5% to 5.25% – the fastest pace of tightening since the 1980s.
“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the Federal Open Market Committee said in its post-meeting statement. The Fed’s next meeting takes place July 25-26.
But policymakers also left the door open to additional rate increases this year.
A FED PAUSE LIKELY WON’T HELP STRUGGLING CONSUMERS
New economic projections laid out after the meeting show that a majority of Fed officials who participated in the meeting expect rates to rise to 5.6% by the end of 2023, implying two more quarter-point increases this year.
The central bank previously projected a peak rate of 5.1%, indicating that policymakers believe there is more work to be done to wrangle inflation under control. Stocks slumped following the surprisingly hawkish projections, with the Dow Jones Industrial Average shedding more than 250 points.
Chairman Jerome Powell stressed during the post-meeting press conference in Washington that “a decision has not been made” about a rate increase in July and said he expects it will be a “live meeting.”
“The main issue that we’re focused on now is determining the extent of additional policy firming that may be needed to return inflation to 2% over time,” Powell said. “It may make sense for rates to move rates higher, but at a more moderate pace. I want to stress one more thing: The decision the Committee made today was only about this meeting. We didn’t make any decision about going forward, including what would happen at the next meeting.”
The quarterly forecasts indicate the U.S. central bank will not cut interest rates until 2024, to a rate of about 4.6%.
The decision came one day after the Labor Department reported the consumer price index – a key measure of inflation – rose 4% in May from the previous year, the smallest increase in more than two years. Still, that remains about twice the Fed’s target 2% rate.
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Other parts of the report also pointed to a slower retreat for inflation. Core prices, which exclude the more volatile measurements of food and energy, climbed 0.4%, or 5.3% annually.
This is a developing story. Please check back for updates.
