The Federal Reserve left interest rates unchanged on Wednesday and reiterated its plans to keep rates stable, noting that no further progress has been made in returning inflation to the 2% target.
The central bank voted at the end of its two-day policy meeting to keep its benchmark interest rate within a range of 5.25%-5.50%, the highest level in 23 years. The Fed Funds rate has been in this range since July 2023.
In a policy statement, Fed officials said, “In recent months, there has been a lack of further progress toward the committee's 2% inflation target.” Officials reiterated that more clarity will be needed on the prospects for inflation's return to target before interest rates are cut.
“The Committee does not expect that it will be appropriate to lower the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said.
Read more: What the Fed's interest rate decision means for bank accounts, CDs, loans and credit cards
In his March press conferenceFed Chairman Jerome Powell suggested it would be appropriate for the Fed to cut rates “at some point” this year.
In its statement Wednesday, the Fed said that “risks to achieving its employment and inflation goals have moved toward a better balance over the past year.” The FOMC characterized the economic outlook as 'uncertain'.
Since predicting in March that three interest rates of 0.25% each could be justified this year, Fed officials have publicly muddied the outlook.
The central bank will release an updated set of economic projections at the end of its policy meeting next month.
In addition, the Fed on Wednesday announced changes to its program to reduce the size of its balance sheet.
Starting June 1, the Fed will slow the pace of monthly Treasury reductions from $60 billion to $25 billion and maintain the cap on mortgage-backed securities at $35 billion per month. The central bank will reinvest all repayments above this ceiling in government bonds.
The decision to slow the pace of balance sheet reduction comes as officials look to avoid disruptions to the functioning of financial markets such as those that disrupted markets in 2019. The Fed has said the balance sheet is separate from setting interest rates.
The decision to maintain interest rates at current levels comes after three consecutive months of higher-than-expected inflation rates.
The Fed's favorite inflation gauge, the “core” personal consumption expenditure index, which excludes volatile food and energy prices, rose at an annual rate of 2.8% in March.
This was the same annual increase as in February and one-tenth of a percent higher than expected. The three-month annualized core PCE rose to 4.4%, more than double the Fed's target.
In its statement on Wednesday, the central bank said: “The Committee is committed to returning inflation to the 2 percent target.”
The decision was unanimous.
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