US Fed leaves rates unchanged, signals cuts later this year

The US Federal Reserve left record-high interest rates unchanged at a policy meeting on Wednesday amid continued inflation pressures but signaled cuts later this year.
US Fed leaves rates unchanged, signals cuts later this year

Traders work, as a screen displays the Fed rate announcement, on the floor of the New York Stock Exchange in New York City, US, on Wednesday.

The US Federal Reserve left record-high interest rates unchanged at a policy meeting on Wednesday amid continued inflation pressures but signaled cuts later this year.

The rates were unchanged as the worst inflation in 40 years persists, and the labor market remains surprisingly resilient.

The Fed's move leaves the current rates in place – a 23-year high of 5.25 percent to 5.5 percent.

The central bank started raising rates in March 2022 to tamp down surging inflation, caused chiefly by what top economists labeled as profligate US government spending during the COVID-19 pandemic.

The Federal Open Market Committee, the Fed's policy-setting body, reiterated that it expects to reduce the target range once it has gained greater confidence that inflation is moving sustainably toward the goal of 2 percent.

"Inflation has eased notably over the past year but remains above our longer-run goal of 2 percent," Fed Chair Jerome Powell said at a press conference Wednesday afternoon. "The ongoing progress in bringing it down is unsure, and the path forward is unsure."

Powell told reporters that recent consumer inflation data has not raised anyone's confidence. "We've got nine months of 2.5 percent inflation now. We've had two months of bumpy inflation. It's going to be a bumpy ride," he said.

US Consumer Price Index in February sped up to 3.2 percent from a year ago, indicating continued inflation pressures, the Labor Department's Bureau of Labor Statistics reported last week.

According to the Fed's latest quarterly summary of economic projections released Wednesday, Fed officials' median projection for the appropriate federal funds rate level would be 4.6 percent at the end of this year, 3.9 percent at the end of 2025 and 3.1 percent at the end of 2026.

The quarterly economic projections also showed that Fed officials revised the median projection of core personal consumption expenditures inflation to 2.6 percent, up from the 2.4 percent projected in December.

Speaking to reporters Wednesday, Powell said the central bank might also slash rates "if there's a significant weakening in the labor market."

The Fed chief said the central bank continues to look for signs that inflation is trending downward toward a more sustainable path, as it seemed to do in the year's first half.

"We're looking for data that confirm the low readings that we had last year," Powell said. "And give us a higher degree of confidence that what we saw was really inflation moving sustainably down to 2 percent."

Barry Bosworth, economist and senior fellow at the Brookings Institution, told Xinhua that the Fed's decision was predictable. "Inflation threatens to move higher in a continuing strong economy. No real reason to cut rates," he said.

Dean Baker, a senior economist at the Center for Economic and Policy Research, told Xinhua that the Fed's decision is "somewhat discouraging."

While the economy does not need lower rates to boost growth, rate cuts would help the housing market, he said.

"Sales of existing homes are down around a third from 2021. There are a lot of people who would be looking to buy or sell homes, but aren't because of the high rates," Baker said.

"(Higher rates) also are making it hard for startups, who don't have retained earnings, and have to borrow in credit markets," Baker said.

At the press conference, the Fed chief noted that he and his colleagues are acutely aware that high inflation imposes "significant hardship" as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing and transportation.

A January Gallup poll showed that 63 percent of US adults say recent price increases have caused financial hardship for their families. This includes 17 percent who say it is a severe hardship affecting their ability to maintain their standard of living and 46 percent who report it as a moderate hardship but does not jeopardize their standard of living.

While overall inflation remains high, it is falling, although there remains a wide variety of inflation measurements.

For example, food inflation remains high as Americans – particularly lower income, lower middle class and those on fixed incomes – continue to stretch their finances to afford everyday items.

Sally Niles, 73, a retiree in New Jersey, told Xinhua that high prices are plaguing the traditionally more affordable supermarkets in her community.

"I've never seen this before," she said, adding that the inflation occurred "suddenly" about two years ago.

The Fed's decision means individuals will continue to pay high mortgages and heightened loan costs as the central bank continues to fight inflation.

Desmond Lachman, a senior fellow at the American Enterprise Institute, recently told Xinhua that keeping interest rates high based on backward-looking data exacerbates the current commercial real estate crisis.

"That could trigger another round of the regional bank crisis and tip the economy into recession," he said.

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