Federal Reserve policymakers kept the target interest rate unchanged at a 23-year high today while officials signaled they still expect to make three quarter-point rate cuts later this year.
Fed officials, in their latest economic projections, expect the the target rate range will end the year near a midpoint of 4.6pc, unchanged from December's projections. That implies three quarter-point cuts, even as inflation has ticked up and job growth has surprised to the upside in recent months.
"We believe our policy rate is likely at its peak in this tightening cycle," chair Jerome Powell said in prepared remarks after the meeting. "If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year."
The Fed's Federal Open Market Committee (FOMC) held the federal funds target rate unchanged at 5.25-5.5pc. It was the fifth consecutive meeting in which the Fed held rates steady following 11 increases from March 2022 through July last year that amounted to the most aggressive hiking campaign in four decades.
"If we ease too much or too soon, we could see inflation come back," Powell said during a press conference after the decision. "If we ease too late, we can do unnecessary harm to employment," he said, adding that the Fed remained "data dependent" in determining its rate moves.
"The economy is strong, the labor market is strong, inflation has come way down and that gives us the ability to evaluate this question carefully," he said.
The decision to keep rates steady was widely expected. CME's FedWatch tool, which tracks fed funds futures trading, had assigned a 99pc probability to the Fed holding rates steady today while giving 64pc odds of a quarter point rate decline in June. Futures markets had earlier expected cuts to begin in March.
Today's decision comes as the chief of the European Central Bank said today that the ECB may begin to lower its target rate in June if inflation continues to ease and that further cuts would be "data dependent."
The Fed's economic projections see core Personal Consumption Expenditures inflation, the Fed's favorite measure of inflation, falling to 2.6pc to end this year from a prior forecast for 2.4pc. Policymakers see inflation falling to 2.2pc next year. They see the lower end of the Fed target range falling to 3.9pc in 2025, compared with the December projection of 3.6pc for late 2025.
The latest policy meeting comes as the Consumer Price Index (CPI) has proven sticky, averaging 3.2pc in the five months through February, down from a peak of 9.1pc in June 2022. US job growth has consistently surprised to the upside and continues to top pre-Covid levels, while GDP growth topped an average 4pc in the second half of 2023.
