WASHINGTON–In a move that surprised no one, the Federal Open Markets Committee adjourned its two days of meetings today by leaving rates unchanged.
As 2024 got underway, there had been some forecasts that at its May meeting the Fed would consider reducing rates as inflation appeared to be steadily declining. But that hasn’t been the case and price increases have proven to be more stubborn than expected and employment has also been robust, helping to keep the rate of inflation well above the Fed’s 2% target.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low,” the FOMC said in announcing its decision. “Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee's 2% inflation objective.”
The FOMC said it “judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”
As a result, the Committee opted to maintain the target range for the federal funds rate at 5.25% to 5.5%.
CU Economist Responds
“The FOMC opted to hold rates steady in May, and it will likely do so for several more meetings," said Curt Long, chief economist with America's Credit Unions. "Given the recent return of price pressures, the committee will demand greater evidence that inflation is truly returning to its target before cutting rates. Although a rate hike in 2024 is no longer unthinkable, the probability remains low. The labor market is healthy, which allows the FOMC to be patient.”
Reduction in Holdings
Meanwhile, the Fed also announced it will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.
“Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion,” the FOMC said in its statement. “The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2% objective.”