Federal Reserve Not Budging On Rates Yet

By PATRICK LAVERY

For the seventh straight meeting, dating back to last September 20, the Federal Open Market Committee on Wednesday voted to maintain the target range for its federal funds rate at 5.25% to 5.5%.

That officially means, as experts and prediction tools had almost unanimously agreed going into the week, that the earliest there will be a change to the key rate is after the next FOMC summit on the final two days of July, one year since the last quarter-point increase, and there is skepticism anything will happen then either.

In a public statement released after the vote was taken, the FOMC was perhaps not as pessimistic as in the past that the rate might in fact need to resume incremental increases, but did reserve space to say this could be done “if risks emerge.” Mostly, the Committee held its line that despite job gains increasing and the unemployment rate remaining low inflation has not approached 2% closely enough to consider an easing of the target range at this time.

Federal Reserve Chair Jerome Powell, in prepared remarks delivered to the media Wednesday afternoon, gave credit where credit was due in explaining that inflation had come meaningfully down from a high of 7%, but at 2.7% currently, was not quite hitting his target.

“My colleagues and I 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,” Powell said. “Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people.”

During the press conference, Powell said although it is projected that there will be one rate cut later this year, the committee’s decisions will continue to remain data-dependent and based on what is happening at the time of their meetings.

Released along with the FOMC’s decision was its Summary of Economic Projections, in which both overall and core Personal Consumption Expenditures Price Index inflation is not forecast to hit 2.0% until 2026, perhaps ominously suggesting just how much further the Fed believes this hold on interest rates may last.

Powell had little to say in terms of housing market activity and how the continued freeze of the key rate would perpetuate mortgage rates still hovering around 7%, but did say bringing inflation down will bring rates down.

Powell warned that even when rates do decline, there will still be a shortage of houses on the market. He also said the committee does not target housing prices when looking at inflation data.

Again in its Implementation Note, the FOMC directed the Open Market Desk at the Federal Reserve Bank of New York to reinvest principal payments from holdings of agency debt and mortgage-backed securities received each calendar month, exceeding a cap of $35 billion, into Treasury securities.

Get More by Signing Up for Our Newsletter!