Feds Hold Steady On Rates, No Hints On When Cuts May Occur
By PATRICK LAVERY
Predicted by both the experts and projection tools alike, the Federal Open Market Committee on Wednesday decided to maintain its target range for the federal funds rate at 5.25% to 5.5%, the sixth consecutive meeting at which the key rate has gone unchanged following a year and a half’s worth of increases.
In prepared remarks, Federal Reserve Chair Jerome Powell echoed previous statements over the past eight months in which he indicated that inflation continues to move too slowly, at least for the Fed’s liking, toward its ultimate goal of 2% to warrant any shift – although according to the data Powell provided, that may be more within reach than previously thought.
Total Personal Consumption Expenditures prices rose 2.7% over the 12 months ending March 31, Powell said, with core PCE prices up 2.8%. That’s different from a year-over-year bump of closer to 3.5% that had been reported last week.
As has been customary while the Fed has held the line on this rate, the Implementation Note issued along with Wednesday’s policy ruling instructs the Open Market Desk at the Federal Reserve Bank of New York to reinvest into agency mortgage-backed securities the amount of principal payments from Fed’s holdings of agency debt and MBS received in May that exceeds a cap of $35 billion per month.
Beginning on June 1, they will reinvest principal payments from the Fed’s holdings of agency debt and agency MBS that exceeds a cap of $35 billion per month into Treasury securities.
During a press conference, Powell said he thinks there will be further progress on inflation this year but did not offer any indication of when they may cut rates.
It was predicted that there would be three rate reductions this year but Powell said data from the first quarter did not increase the committee’s confidence enough to loosen their restrictive policy stance.
When asked if there was any discussion of a rate hike at the meeting, Powell said if they were to conclude that their policy stance is not sufficiently restrictive to bring inflation sustainably down to 2%, they could increase rates but don’t see evidence of that right now.
“Clearly restrictive monetary policy needs more time to do its job. That is pretty clear based on what we’re seeing. How long that will take and how patient we should be is going to depend on the totality of the data, how the outlook evolves,” Powell said.
Powell was asked about how housing data related to rental prices will be helpful in the fight against inflation. He said rents are an example of how there are lag structures built into the inflation process.
“When someone goes, a new person goes to rent an apartment, that’s called market rent and you can see market rents are barely going up at all. Inflation in those has been very low. But before that, they were incredibly high,” Powell said. “Those market rents take years, actually, to get all the way into rents for tenants who are rolling over their leases.”
If rents stay steady, this will eventually show up in inflation data, Powell said. The price of housing has been a driver of inflation.
The next FOMC meeting is scheduled for June 11 and 12.
Editor Kimberley Haas contributed to this article.
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