The Federal Reserve Bank this afternoon announced that it is not cutting interest rates and will leave the target range for the federal funds rate where it has been at 5-1/2% to 5-1/2%. It also indicated that it is taking steps to reduce its holdings of Treasury and mortgage securities.
There had been previous hints at the Fed intended to institute at least three interest rate cuts this year, but so far it hasn’t said whether that would happen or when cuts might begin. Today’s announcement is viewed as an indication that the prospects for a near-term start to rate cutting is not likely.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed said in a statement released at the end of its two-day meeting. “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% inflation objective.”
The Fed said that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.
“The economic outlook is uncertain, and the committee remains highly attentive to inflation risks,” the Fed stated. “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%. 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 to which the Fed refers is the Federal Open Market Committee, which votes on what to do with interest rates.
