Fed officials plan to keep interest rates high for a reason: They want to make sure inflation is completely eliminated to prevent rapidly rising rates from becoming a more permanent part of the U.S. economy.
For the sixth time in a row, the US Federal Reserve decided, at its meeting on Wednesday in Washington, to keep the key interest rate unchanged, a decision that was expected.
The Council explained that the interest rate will remain between 5.25% and 5.5%, allowing commercial banks to obtain loans from the Federal Reserve at those rates.
Federal Reserve officials left interest rates unchanged and signaled they were concerned about how difficult inflation would be, setting the stage for a longer period of higher interest rates.
The Fed kept borrowing costs steady at 5.33 percent on Wednesday, leaving them at the highest level in more than two decades where they have been set since July. Central bankers repeat that they need “greater confidence” that inflation is falling before cutting interest rates.
“Inflation readings came in above expectations,” Jerome Powell, Chairman of the Federal Reserve, said in a press conference following the release of the central bank’s interest rate decision.
The Fed is at a complex economic juncture. After months of rapid deceleration, inflation has proven surprisingly stable in early 2024. The Fed’s favored inflation indicator has made little progress since December, though it has fallen sharply from its highest levels in 2020. 2022, but it is still well above the Fed’s 2 percent target – a reason for optimism.
The question is when and to what extent officials will be able to cut interest rates.
“What we said is we need to be more confident” that inflation is falling sufficiently and sustainably, Powell said. “It looks like it’s going to take longer until we get to that point of confidence.”
