The Federal Reserve kept its benchmark interest rate at the current 5.25% to 5.5% target range, as policymakers acknowledged that inflation has eased over the past year but remains elevated.
As was widely predicted on and off Wall Street, the Fed continued its long-term messaging saying that it is committed to dropping inflation to its 2% target range as the economic outlook remains uncertain.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low,” said the central bank's rate-setting group — the Federal Open Market Committee (FOMC) — in its statement marking the conclusion of its two-day policy meeting today (March 20). “The committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the FOMC said.
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“It’s good to see the Fed understands it can cut rates while still being tough on inflation, given that the real fed funds rate will still be considered very restrictive," said Bryce Doty, senior PM/VP at Sit Investment Associates.
The FOMC also said it would continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The committee also forecast three potential quarter-point rate cuts by the end of this year, reiterating its outlook from December.
The news comes on the heels of last week’s fourth-quarter gross domestic product (GDP) report, which showed a 3.2% growth rate. The rate is expected to slow to an average of 2% this year, which is in line with the economy’s potential growth rate, according to Kiplinger’s GDP Outlook report.
In remarks last week at a Kentucky production facility, Treasury Secretary Janet Yellen said that the nation’s economic recovery has been “the fairest" recovery on record. She said that GDP growth is strong and that inflation is down significantly, ”though we continue to take action to bring prices down, including health care costs.”
Federal Reserve Chairman Jerome Powell is set to provide more details on the FOMC decision at his subsequent press conference.
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