The U.S. Federal Reserve held interest rates steady for a sixth straight meeting on Wednesday, keeping the level at a 23-year high to fight stubborn price increases.
At the end of a two-day meeting, the central bank decided unanimously to keep the benchmark lending rate unchanged at 5.25-5.50%, citing a "lack of further progress" towards its 2% inflation target.
"The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks," the Fed said in a statement.
For months, the U.S. central bank has held its benchmark lending rate at a high level to cool demand and rein in price increases -- with a slowdown in inflation last year fueling optimism that the first cuts were on the horizon.
But inflation has accelerated, throwing cold water on hopes of an early rate cut this year.
The central bank said it does not expect to cut rates until it has "greater confidence" that inflation is moving sustainably towards its 2% target.
At a press conference, Fed Chair Jerome Powell said: "It is likely that gaining such confidence will take longer than previously expected."
While the central bank is prepared to hold rates at a high level for as long as appropriate, Powell added that it is "unlikely that the next policy rate move will be a hike."
He maintained that monetary policy needs more time to do its job, adding that the Fed will consider the totality of economic data when making decisions.
- 'Uncertainty' -
Just weeks ago, financial markets expected the central bank to begin rate cuts in June.
But the most recent inflation reports "definitively pushed the lift-off date substantially into the future," said Dan North, senior economist at Allianz Trade North America.
"The September meeting now seems like the most likely time for the first cut," he added.
According to CME Group data released earlier Wednesday, traders do not see a significant chance of rates coming down until around September.
Ryan Sweet, chief U.S. economist at Oxford Economics, said that "given the incoming data on inflation, risks are weighted toward fewer cuts this year."
The Fed's dependence on incoming data also raises "uncertainty in the forecast for the path of monetary policy," Sweet added in a recent note.
As hope dwindles for rate cuts in the first half of this year, the Fed also faces a growing possibility that eventual reductions will coincide with the run-up to November's presidential election.
This could give the economy a boost while Democrats and Republicans vie to win over voters.
But the converging timeline may prove uncomfortable because the Fed, as the independent U.S. central bank, seeks to avoid any appearance of politicization.
Asked if the bar for rate changes is higher close to an election, Powell said: "It just isn't part of our thinking."
He stressed that considering political factors would reduce the likelihood of getting the economics right.
- Balance sheet -
On Wednesday, the central bank also announced that starting in June, it would 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 Fed embarked on a policy of so-called quantitative easing during the Covid-19 pandemic, swelling its balance sheet by buying assets that included U.S. Treasury securities to support the economy through economic turmoil unleashed by the virus.
Since rolling back the policy in 2022, the Fed has steadily reduced its holdings.
Analysts have been attempting to predict when it would begin slowing down the reduction in the size of its balance sheet.
The bank has been allowing up to $95 billion in assets to mature each month without being replaced.
The ongoing measure reduces the overall size of the Fed's balance sheet and is also meant to tighten monetary policy.
It currently holds about $7.4 trillion in assets.
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