Federal Reserve Keeps Interest Rates Unchanged As Inflation Subbornly Keeps High

1st May 2024

The Federal Reserve left its key interest rate unchanged at between 5.25% and 5.5% — the highest level in more than a decade — as annual inflation rates continued to stall.

In its statement announcing the hold, the central bank said that in recent months, there had been "a lack of further progress" toward its 2% percent inflation goal.

"Economic activity has continued to expand at a solid pace," it said. "Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated."

Last month, the consumer price index came in at 3.5% on an annual basis, driven by rising housing costs and insurance rates, especially auto insurance.

"We're just a mile a way from the finish line," said Mark Zandi, chief economist at Moody's, referring to the economy reaching 2% inflation. "We're very close, but still not there. I do think that inflation will continue to moderate."

The Fed has sought to slow inflation by keeping interest rates elevated. By making it more expensive for businesses and consumers to borrow money, including through credit cards, the Fed hopes to reduce demand for goods and services, thereby reducing price growth.

The Fed
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 percent inflation objective.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.