Federal Reserve hold interest rates steady, forecasts two more rate hikes this year


The Federal Reserve held interest rates steady Wednesday, but officials signaled they are prepared to raise rates again this year to tame stubborn inflation.

The central bank maintained its benchmark interest rate in the range of 5%-5.25%, the first time since January 2022 the Fed made no change to interest rates following a policy meeting.

Fed officials did, however, raise their interest rate forecasts for this year, signaling rates could rise to as high as 5.6%, implying two additional rate hikes are likely this year. Three officials see rates rising closer to 6%.

Next year, officials see interest rates falling by 100 basis points to around 4.6%, higher than the 4.3% forecasted in March.

In its statement, the Fed said, “[Holding] the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy.”

However, officials kept language in the statement which said, “In determining the extent to which additional policy firming may be appropriate … the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” leaving the central bank room to raise rates again this year.

The Fed had raised rates at 10 straight policy meetings through May, bringing its target range from 0%-0.25% to 5%-5.25%, the highest since 2007, in just 14 months. Wednesday’s decision to hold rates steady was unanimous.

Since peaking at 9.1% in June 2022 inflation has come down, with headline inflation rising just 4.1% in May according to data released on Tuesday. On a “core” basis — which strips out volatile food and energy prices — inflation clocked in at 5.3% for May. That compares with 5.5% seen in April.

Both readings are still well above the Fed’s 2% target.

Along with its policy decision on Wednesday the Fed released an updated Summary of Economic Projections (SEP), which outlined officials’ expectations for growth, inflation, rates, and the labor market over the balance of this year and the next two.

Fed officials see inflation finishing the year close to 4% now, compared with 3.6% prior. Unemployment is only seen rising to 4.1% from 4.5% previously. Officials now see stronger economic growth this year of 1% verses 0.4% previously.

Officials again noted that tighter credit conditions for households and businesses are likely to weigh on the economy, hiring and inflation and the degree of impact is uncertain.

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