The Federal Reserve announced on Wednesday that it will maintain current interest rates, a widely anticipated decision. However, the Fed also indicated that officials foresee only a single interest rate cut this year.
To achieve its objectives of maximum employment and 2 percent inflation over the long term, the Fed chose to keep the target range for the federal funds rate between 5.25 and 5.50 percent.
While acknowledging some progress towards its inflation goal in recent months, the Fed stated that officials require "greater confidence" that inflation is consistently trending towards the target before they will consider reducing rates.
This ongoing need for "greater confidence" was mirrored in the Fed officials' latest interest rate forecasts. According to the most recent projections, officials now expect the rates to be in the range of 5.0 to 5.25 percent by the end of 2024. This suggests only one rate cut this year, compared to the three that were forecasted in March.
The revision in expected rate cuts coincides with an upward adjustment in the Fed officials' forecasts for consumer price growth by the end of the year. The forecast for consumer price growth was revised up to 2.6 percent from 2.4 percent recorded in March, while the forecast for core consumer price growth increased to 2.8 percent from 2.6 percent. Core consumer prices exclude food and energy prices.
Additionally, the Labor Department reported earlier that day a slowdown in consumer price growth pace for May, though it remains well above the Fed's 2.0 percent target. The annual consumer price growth rate decelerated to 3.3 percent in May from 3.4 percent in April, contradicting economists' expectations that it would remain unchanged.
The annual core consumer price growth rate also slowed to 3.4 percent in May from 3.6 percent in April, whereas it was anticipated to dip to 3.5 percent.
Despite these adjustments, the Fed officials kept their forecasts for GDP growth and the unemployment rate stable at 2.1 percent and 4.0 percent, respectively, from March.
The Fed reiterated that any future interest rate changes would be based on a careful assessment of incoming data, the evolving economic outlook, and the balance of risks.
The central bank's next monetary policy meeting is set for July 30-31, with the CME Group's FedWatch Tool currently indicating an 89.3 percent likelihood of maintaining the status quo on rates.
