Federal Reserve Holds Fast on Interest Rates

The Federal Reserve yesterday left the federal funds rate unchanged at a target range of 5¼% to 5½%.

In a statement, the Fed said:

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the committee's 2% inflation objective.”

Fed Chair Jerome Powell said that the bar to cut interest rates had gone up, but that the bar to hike rates was even higher, according to reporting by The Wall Street Journal.

“It’s likely to take longer for us to gain confidence that we are on a sustainable path” to lower inflation, Powell said. He said he expected inflation would resume its decline this year but added, “my confidence in that is lower than it was.”

Powell added that for officials to consider hikes again, they would need persuasive evidence that higher interest rates weren’t bringing down inflation, according to the newspaper. “That’s not what we think we’re seeing,” he said. “That will be a question that the data will have to answer.”

A string of benign inflation readings late last year jumpstarted conversations about potential cuts and fueled market rallies. But first quarter inflation made it doubtful that the central bank would be able to follow through on those cuts, according to published reports.