Fed Holds Steady, But Lower Interest Rates Seem Certain

Reining in inflation remains the top priority, says Powell.

Federal Reserve Chair Jerome Powell speaks at the March 20 press conference. Screenshot by Gabriel Frank

In its second meeting of the year, the Federal Reserve Open Markets Committee elected to hold interest rates at their current level, a target range of 5.25 to 5.5 percent. This fifth consecutive pause follows a cooling down of the labor market, with a slight increase of the unemployment rate to 3.9 percent and the addition of 275,000 jobs.

Inflation has proven a tougher nut to crack than was perhaps initially anticipated. The rate of inflation clocked in at 3.2 percent as of February, a 10-basis-point increase over January and more than a percentage point above the Fed’s target of 2 percent. Still, inflation metrics are down significantly since their peak in June 2022.

“As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals are moving into better balance,” Federal Reserve Chairman Jerome Powell said during his Wednesday March 20 press conference.

Rate cuts on the horizon

Barring some unforeseen shocks to the economy, rate cuts are expected sooner rather than later, with a majority of FOMC members anticipating the target range reaching a median of 4.6 percent before the end of the year and 3.9 percent in 2025.

Still, this is all contingent on inflation actually coming down. “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 down toward 2 percent,” said Powell, adding that the Fed is prepared to keep rates higher for longer if need be.

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