- Natalie Sherman
- new york business reporter
image source, Getty Images
U.S. central bank officials left interest rates on hold at 23-year highs and said a cut was coming, but not yet.
The Fed’s decision once again kept its target range of benchmark interest rates, which help set borrowing costs for mortgages, credit cards and other loans, at 5.25% to 5.5%.
That’s significantly higher than two years ago, when the Fed began raising interest rates to combat inflation.
Investors are expecting interest rate cuts this year.
But all eyes are on exactly when the central bank will begin to change course, especially as many other countries’ central banks face similar decisions, including the Bank of England, which meets on Thursday.
Fed Chairman Jerome Powell said in a post-meeting news conference that he does not expect policymakers to cut interest rates in March, as some investors have bet.
He acknowledged that most member countries expected to start cutting interest rates before the end of the year, but said he was currently seeking “further confidence” that inflation would continue to fall.
“We would like to see more data,” he said, noting that much of the decline so far has been driven by commodity prices, not services.
“It’s a very important decision to begin the process of rolling back restrictions. We want to get it right.”
The Fed hasn’t raised interest rates since July, and this month’s meeting will be its fourth without any changes.
Proponents of rate cuts argue that the soaring prices that prompted the central bank to start raising interest rates in 2022 have slowed.
Inflation, which measures the pace of price rises, was 3.4% in the U.S. in December, but by some measures it has fallen even lower and is starting to approach the 2% rate the bank considers healthy.
Rising interest rates cool inflation by making borrowing more expensive and discouraging people and businesses from borrowing.
Declining activities such as home buying and business expansion slow the economy and reduce upward pressure on prices.
Analysts say the Fed won’t want to leave its weight on the economy indefinitely for fear of triggering a recession.
But while growth has slowed and some sectors such as housing have been hurt, broadly speaking the economy has remained unexpectedly resilient, easing pressure on the Fed to act. .
Growth in the last few months of the year remained at an annualized rate of 3.3%, and the unemployment rate in December was near historic lows at 3.7%.
December forecasts showed that most members of the Fed’s rate-setting committee expect interest rates to be cut by 0.75 percentage point at the end of this year.
Brian Coulton, chief economist at Fitch Ratings, said the statement shows the Fed is satisfied with current interest rates and wants to counter market expectations of an imminent rate cut. .
“The Fed appears to be very cautious about prematurely reaching the conclusion that inflation is returning to 2% on a sustainable basis and wants more time to evaluate the evidence,” he said. Stated.
“There is little evidence of slowing growth, the labor market remains tight, and wage and service inflation is rising, so we don’t expect a rate cut until June or July.”
U.S. stock prices fell after the press conference as investors digested the comments.