On May 1, the US Federal Reserve (Fed) announced that it would keep the reference interest rate unchanged at a 23-year peak. Despite speculation, the Fed denied the possibility of increasing interest rates following a two-day policy meeting. The current reference interest rate in the US is approximately 5.25-5.5%, the highest level in 23 years. This decision marked the sixth consecutive meeting where the Fed kept interest rates steady.
The Fed had previously raised interest rates 11 times since March 2022 in an effort to combat inflation. While inflation had slowed from its peak in the summer of 2022, recent data indicates a lack of improvement, according to the Fed. Fed Chairman Jerome Powell expressed concerns about high inflation levels and highlighted the challenges of stabilizing the economy.
In an effort to ease restrictions on the economy, the Fed announced a reduction in the rate of balance sheet contraction. Starting in June, the Fed will allow $25 billion of government bonds to mature each month without buybacks, down from the previous $60 billion. Powell discussed various scenarios that could lead to interest rate cuts, including cooling inflation and stabilization of the job market.
Despite a solid job market with an unemployment rate below 4% and increasing business hiring, concerns about persistent inflation linger. Forecasts for when the Fed might begin cutting interest rates vary, with some banks predicting cuts as early as July or as late as December. Powell emphasized the need for more data and emphasized that
