Fed holds rates, awaits more data on inflation

Fed keeps interest rates steady, seeking more data to confirm sustainable inflation progress

Fed holds rates, awaits more data on inflation

Federal Reserve officials have acknowledged in their June meeting that inflation is heading in the right direction but not quickly enough to reduce interest rates, as reported by CNBC.

The minutes released Wednesday show officials' concerns and their need for additional data before making any rate changes.

Participants noted that they required more favourable data to confidently conclude that inflation is moving sustainably toward the 2 percent target.

Despite some disagreements among the 19 central bankers present, with a few suggesting rate increases, if necessary, the Federal Open Market Committee decided to keep rates steady.

The Fed has aimed for a 2 percent annual inflation rate since early 2021. While recent data shows improvement, officials want more evidence of continued progress.

They emphasized that lowering the federal funds rate target range would only be appropriate once additional information confirms sustainable progress toward the 2 percent goal.

During the meeting, policymakers also updated economic projections and monetary policy for the next several years. The FOMC's “dot plot” indicated a quarter percentage point cut by the end of 2024, down from the three cuts projected in March.

Futures markets, however, still price in two cuts starting in September.

The committee left most economic projections unchanged but lowered inflation expectations for this year. Some members argued for tightening policy if inflation persists, while others suggested readiness to respond to potential economic or labour market weaknesses.

The minutes stated that several participants observed the need to raise the federal funds rate target range if inflation remains high or increases further. Meanwhile, a number of participants remarked on the necessity for monetary policy to be prepared for unexpected economic weakness.

Although the minutes did not identify individual members or specify the number of officials supporting particular viewpoints, they noted a “vast majority” expecting economic growth to “gradually cool” and described current policy as “restrictive.”

Officials continue to consider how restrictive policy should be to reduce inflation without causing undue economic harm.

Since the meeting, officials have emphasized a cautious, data-dependent approach rather than relying on forecasts. However, multiple officials, including Chair Jerome Powell, have indicated that sustained positive inflation readings would build confidence in the potential for rate reductions.

In Portugal on Tuesday, Powell balanced the risks of cutting rates too soon and potentially reigniting inflation against cutting too late and endangering economic growth. Previously, officials stressed the importance of maintaining the fight against inflation and not retreating prematurely.