The Federal Reserve voted to keep interest rates at a 23-year high as inflation has edged up and the labor market remains strong, likely pushing potential rate cuts even later into the year.
Interest rates will remain at a range of 5.25 to 5.5 percent, where they have been since last July, the Federal Open Market Committte (FOMC) announced in a statement. While the Fed signaled in December that it could start cutting rates this year, a majority of traders don’t anticipate the first rate cuts to come until November, according to the CME FedWatch Tool.
The FOMC, the panel of Fed officials responsible for setting monetary policy, hiked rates from 0 percent in March 2022 to their current level to curb pandemic-induced inflation. The Fed has since extended the runway for bringing rates down as inflation remains stubbornly sticky.
Inflation readings have ticked up since the start of the year. Prices were up 3.5 percent in March from a year ago, according to the latest consumer price index (CPI), moving away from the Fed’s 2-percent target.
The Fed has a dual mandate to keep inflation low and maximize employment, and the FOMC is not yet confident the economy is coming in for the rare “soft landing,” when the economy slows enough to bring down inflation without triggering a recession.
While many economists predicted a recession at the start of last year, the U.S. economy has proved remarkably resilient. The economy added 303,000 jobs last month, beating expectations, and the jobless rate has remained below 4 percent for the longest stretch since the late 1960s.
