William Simpson
Federal Reserve officials said they are leaving their benchmark rate unchanged, noting that progress on inflation in the US has stalled.
The Fed on Wednesday he said is keeping the federal funds rate in a range of 5.25% to 5.5%, the same level it has maintained since the central bank’s decision. July 2023 meeting, which is the highest level in more than 20 years. Economists largely expected the decision, as inflation had risen in the first three months of 2024.
Fed Chairman Jerome Powell has repeatedly said the central bank prefers to keep rates high until inflation retreats to around 2% on an annual basis, rather than risk cuts too soon and fuel another round of price spikes. Despite the Fed’s wave of interest rate hikes, inflation remains stubbornly high, with March prices rising 3.5% compared to the previous year, driven by rising housing and gasoline prices.
At a press conference to discuss the central bank’s decision, Powell stressed that he is confident inflation will retreat to the Fed’s 2% target, although the economy is taking longer to reach that point than policymakers had previously expected. . Powell also sought to quell any concerns that the Fed might reverse course in response to persistent inflation, saying it was “unlikely that the next move in the key rate will be an increase.”“
Fewer interest rate cuts?
Powell hesitated when asked whether the Fed would continue to cut rates three times in 2024 as it had done. nominated earlier this year. Instead, he responded that Fed officials need to feel more confident before they act to ease borrowing costs.
“We said today that we have not seen progress [on inflation] in the first quarter, and I said it looks like it’s going to take longer to get to that point,” he said, adding, “I don’t know how long it will take.”
Wall Street traders now predict just one single rate cut this year at the Fed’s benchmark rate. This compares with its expectations at the start of the year that the Fed could cut rates up to six times in 2024.
In its Wednesday statement, the Fed reiterated that it will not cut rates “until it gains greater confidence that inflation is moving sustainably toward 2%.”
“Patience is the watchword right now for the Fed and the risk of fewer or no rate cuts this year is growing,” wrote Brian Coulton, chief economist at Fitch Ratings, in an email following the Fed’s decision. “[T]The risk of not being able to reduce inflation in a sustained manner seems to increase with each passing week.”
He added: “The statement explicitly recognizes the recent deterioration in inflation dynamics,” noting that inflation has risen by some measures in recent months and a increase in wages during the first quarter, which could boost prices.
What does the rate decision mean for your money?
Expect to continue paying high fees to borrow money, noted Jacob Channel, senior economist at LendingTree.
Mortgage rates will likely remain above 7%, at least in the near term, he added. Credit card rates, which are at a record high tallwill certainly remain elevated, he noted.
“In general, everything is expensive,” Channel said. “The interest rate on a credit card will make the interest rate on a mortgage seem minuscule in comparison.”
On the bright side, savers will likely continue to find higher-interest savings accounts, with some offering yields above 5%, according to Ken Tumin, banking expert at DepositAccounts.com. Certificates of deposit and other savings vehicles can also offer robust rates.
– The Associated Press contributed to this report.
