In its latest monetary policy meeting of the first half of the year, the United States Federal Reserve (FED) announced its decision to keep interest rates unchanged, in the range of 5.25% to 5.50%. This measure, which was unanimously taken by all members of the Federal Open Market Committee (FOMC), marks the eighth consecutive occasion that the Fed has kept rates at this level.
The Fed’s official statement highlighted the importance of carefully evaluating incoming economic data, the evolution of outlooks, and the balance of risks before considering any adjustments to the target range for the federal funds rate. It is not deemed appropriate to lower the target range until there is greater confidence that inflation is sustainably moving towards 2%.
This announcement comes in a context where rate cut expectations have been adjusted, with a forecast of only one cut this year, contrasting with previous expectations of multiple cuts. The Fed acknowledged a modest further progress towards its 2% inflation target, although recent advancements have been slow.
Federal Reserve Chairman Jerome Powell emphasized that the inflation forecasts provided by the Fed are conservative and subject to revision. While he expressed satisfaction with the consumer price index data, which turned out better than expected, Powell stressed that monetary policy is unlikely to return to pre-pandemic looseness. He noted that Fed officials are gradually coming to the view that the very low rate environment observed before the pandemic may not return as before.
Regarding market reactions, Wall Street had a positive day, with the S&P 500 and Nasdaq indices operating at record highs. The yields on 10-year Treasury bonds also fell, reflecting the confirmation that the period of stable rates is extending longer than anticipated.
