Hours after a better-than-expected inflation report came out, Federal Reserve officials on June 12 kept interest rates unchanged for the seventh consecutive meeting and signaled only one rate cut this year.
The Federal Open Market Committee held the federal funds rate steady at a range of 5.25% to 5.5% following its two-day meeting. Since March 2022, the Fed has raised the funds rate, which is now at its highest level since 2001, 525 basis points, though rates have been at the current level since July.
Notably, the committee’s median projection for the federal funds rate at the end of 2024 is now 5.1%, up from a projected 4.6% (representing three rate cuts) in April. The committee projects the funds rate to drop to 4.1% at the end of 2025 and 3.1% at the end of 2026.
“We know that removing policy restraint too soon or too much could result in a reversal of the progress that we’ve seen on inflation,” Fed Chair Jerome H. Powell said at a news conference. “At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.”
Powell said the Fed will assess incoming data when making policy decisions but was pleased with a report from Bureau of Labor Statistics on June 12 that showed that the consumer price index rose an annualized 3.3% from a year ago in May, slightly below expectations, and also below the 3.4% figure recorded in April. Economists were expecting a 3.4% annualized CPI figure for May, according to financial data firm FactSet Research Systems.
When asked if additional CPI reports like the one from June 12 would make a rate cut at the committee’s September meeting a possibility, Powell said the decision will depend on a range of data.
“We see today’s report as progress and as building confidence, but we don’t see ourselves as having the confidence that would warrant beginning to loosen policy at this time,” Powell said.
Separately, the core personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 2.8% year over year in April, the same pace as March and February, according to data released May 31.
The committee's median projection for core PCE inflation by the end of 2024 is now 2.8%, up slightly from 2.6% in March. The committee sees core PCE inflation decreasing to 2.3% by the end of 2025 and to 2% by the end of 2026.
The committee in a statement said that it does not expect it will be appropriate to reduce rates until it has gained greater confidence that inflation is moving sustainably toward its 2% goal.
The committee's decision to maintain rates was unanimous among its 12 members.
The Fed's next meeting is July 30-31.
