The Zhitong Finance App learned that on Wednesday, the Federal Reserve announced that it will keep interest rates unchanged in the range of 5.25% to 5.5% as scheduled, while pointing out that the rate of cooling inflation has come to a standstill recently. This indicates that unless the economy recedes, the Federal Reserve will maintain a wait-and-see attitude and wait for a better time to adjust interest rates.

In a policy statement issued on the same day, the Federal Reserve emphasized the lack of further progress in reducing inflation in recent months. Previously, the Federal Reserve believed that the US economy was entering a better balance in achieving the goals of price stability and full employment. However, the latest statement suggests that this improvement has stalled and that a better balance has been achieved over the past year.

The Federal Reserve has also approved a plan to mitigate quantitative austerity, which aims to extend the end of the economic stimulus plan launched four years ago in response to the pandemic. Starting in June, the Federal Reserve plans to cut the upper limit of the monthly treasury bond size reduction by more than half, from a maximum of 60 billion US dollars per month to 25 billion US dollars per month. The downsizing operation means that the Federal Reserve buys back maturing treasury bonds so that these bonds are no longer traded after maturity. This is equivalent to the government reducing assets and liabilities at the same time; in fact, it is recovering cash flow.

The Federal Reserve quickly raised interest rates from near zero in 2022 to cope with inflation reaching a 40-year high. Interest rates have been raised 11 times out of 12 meetings since July 2023, and interest rates have remained unchanged since then. Changes in federal funds rates affect other borrowing costs across the economy, such as mortgages, credit cards, and business loans. According to Freddie Mac, the 30-year fixed-rate mortgage rate was 7.17% last week, up from 6.61% at the end of last year.

The rise in interest rates has also increased the cost of interest payments on the US government's public debt of more than $27 trillion, which is expected to exceed defense spending in 2024.

Although the market's expectations of a possible interest rate cut by the Federal Reserve continue to decline, foreign media reports say that disappointing inflation data, combined with signs of recovery in economic activity, have broken investors' expectations for interest rate cuts. It will take months of weak inflation data to make the Federal Reserve reconsider cutting interest rates.

At the March meeting, most officials expected to cut interest rates two to three times this year. But the same month's inflation report made many people now anticipate that interest rates may only be cut once this year. Federal Reserve Chairman Powell said at a press conference in March that recent data did not strengthen their confidence that inflation would continue to be reduced to 2%; on the contrary, it showed that it may take longer than expected to achieve this target.

The core inflation rate, an index of inflation after excluding highly volatile food and energy prices, increased 2.8% year-on-year in March, down from 4.8% in March 2023. However, in the six months to March, the annualized price growth rate was 3.0%, up from 1.9% in the six months ending December last year. The Federal Reserve's goal is to reduce the inflation rate to around 2% over time.

FOMC Policy Statement

Here's a comparison between Wednesday's FOMC statement and the statement issued by the Federal Reserve after its last policy development meeting in March. There is a horizontal line in the middle of the deleted section of the text, and the red font indicates additions or modifications.

Recent indicators suggest that economic activity has continued to expand at a steady pace. Employment growth has remained strong, and the unemployment rate has remained low. Passbooks have eased over the past year, but they are still at a high level. There has been a lack of further progress in recent months in meeting the Commission's 2% inflation target.

The Commission is seeking maximum employment and 2% inflation over the long term. The Committee believes that the risks of meeting employment and inflation targets over the past year have been better balanced. The economic outlook is uncertain, and the Committee remains very concerned about the risk of inflation.

To support these goals, the Commission decided to maintain the federal funds rate target range of 5.25% to 5.5%. In considering any adjustments to the federal funds rate target range, the committee will carefully evaluate future data, changing prospects, and risk balance. The Committee believes that it is inappropriate to lower the target range until there is greater confidence that inflation will continue to move towards 2%. Furthermore, the Commission will continue to accept treasury bonds, institutional debt, and institutional mortgage back-up securities, as described in its previously announced plans.

Starting in June, the Federal Open Market Committee will reduce the monthly redemption limit for US Treasury bonds from $60 billion to $25 billion, thereby slowing down the decline in its securities holdings. The Commission will maintain a monthly redemption limit of $35 billion for institutional debt and institutional mortgage-backed securities. Any principal payments above this limit will also be reinvested in treasury bonds. The Commission is strongly committed to the goal of restoring the billing rate to 2 per cent.

In evaluating appropriate monetary policy positions, the Committee will continue to monitor the impact of upcoming information on the economic outlook. If there is a risk that could hinder the achievement of the Committee's goals, the Committee will be prepared to adjust its monetary policy position as appropriate. The committee's assessment will take into account a wide range of information, including labor market conditions, inflationary pressures and bank account expectations, as well as developments in the financial and international situation.

The members who voted in favor of the monetary policy resolution include:

FOMC Chairman Powell, FOMC Vice Chairman Williams, Richmond Federal Reserve Chairman Barr, Federal Reserve Governor Bauman, Federal Reserve Governor Cook, Atlanta Federal Reserve Chairman Bostic, San Francisco Federal Reserve Chairman Daly, Federal Reserve Chairman Jefferson, Cleveland Federal Reserve Chairman Meester, Federal Reserve Governor Kugler, and Federal Reserve Governor Waller.