The Federal Reserve left its key interest rate unchanged at between 5.25% and 5.5% — the highest level in more than a decade — as annual inflation rates continued to stall.
In its statement announcing the hold, the central bank said that in recent months, there had been "a lack of further progress" toward its 2% percent inflation goal.
"Economic activity has continued to expand at a solid pace," it said. "Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated."
Last month, the consumer price index came in at 3.5% on an annual basis, driven by rising housing costs and insurance rates, especially auto insurance.
"We're just a mile a way from the finish line," said Mark Zandi, chief economist at Moody's, referring to the economy reaching 2% inflation. "We're very close, but still not there. I do think that inflation will continue to moderate."
The Fed has sought to slow inflation by keeping interest rates elevated. By making it more expensive for businesses and consumers to borrow money, including through credit cards, the Fed hopes to reduce demand for goods and services, thereby reducing price growth.
So far, the results of doing this have been mixed. After a period of rapid interest rate hikes, the pace of inflation fell from more than 9% in the summer of 2022 to its current levels of between 3% and 4%.
But the decline has since stalled.
There are complex reasons for the lack of progress and many elements may actually be out of the Federal Reserve's control. Home and auto insurance companies continue to pass on higher costs to consumers. Meanwhile, even as many consumers struggle, post-pandemic wealth gains have left others — especially older consumers — with plenty of money to spend, despite higher prices.
Whatever the case, the wait for slower inflation has left the average consumer in an increasingly dour mood. On Tuesday, the Conference Board’s monthly Consumer Confidence Index came in at its lowest level since July 2022. Consumers expressed more concern about the current labor market situation, future business conditions, job availability and income, the group said.
Still, most analysts say the odds of a recession are remote. In the most recent GDP report, spending on services, which includes everything from restaurants to airfare to professional services, came in at 4% year-on-year, the fastest rate since 2021.
“Don’t underestimate this economy,” economists with Wells Fargo said in a report following the release.
Consumers thus appear to be sensing that the most crucial part of the economy — the jobs market — is slowing, even while prices remain elevated.
Fed Chair Jerome Powell acknowledged this complex economic environment in remarks in early March.
"The outlook is still quite uncertain," Powell said. The central bank must balance its campaign against elevated inflation with ensuring the economy does not slip into a recession.
Economists like Zandi aren't expecting the Fed to raise interest rates, either.
Instead, the Fed will likely continue to keep rates elevated — perhaps even until after the November general election so that it does not appear to favor one candidate or another.
"[Powell's] message is clear: We can’t cut rates and we’re not there yet," Zandi said. "We've still got a ways to go."
Rob Wile
Rob Wile is a breaking business news reporter for NBC News Digital.
FAQs
Federal Reserve keeps interest rates at current levels as inflation holds its grip. The Federal Reserve left its key interest rate unchanged at between 5.25% and 5.5% — the highest level in more than a decade — as annual inflation rates continued to stall.
Does the Fed reserve control inflation? ›
The Fed is the nation's central bank, and perhaps the most influential financial institution in the world. It is charged with helping the U.S. maintain stable prices (inflation), promote maximum sustainable employment and provide for moderate, long-term interest rates.
What is the interest rate of inflation in the Federal Reserve? ›
The Fed has kept its benchmark policy rate at 5.25%-5.50% since last July and, stung by three months of stronger-than-expected inflation readings from January to March, is only cautiously welcoming more recent encouraging signs of a loosening in the labor market and return to further progress in lowering inflation ...
What is the Fed's decision on interest rates? ›
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
Why does the Federal Reserve aim to maintain the same inflation rate? ›
Inflation rates around these levels are often associated with good economic performance: a higher inflation rate could prevent the public from making accurate longer-term economic and financial decisions and may entail a variety of costs as described above, while a lower rate might make it harder to prevent the economy ...
Why does the Fed keep raising interest rates? ›
By raising interest rates, the Federal Reserve wants to make borrowing more expensive. Rising interest rates typically encourage people to save more. Less money circulating in the economy means slower economic growth and less inflation.
How do interest rates control inflation? ›
How does increasing interest rates reduce inflation? Increasing the bank rate is like a lever for slowing down inflation. By raising it, people should, in theory, start to save more and borrow less, which will push down demand for goods and services and lead to lower prices.
Do interest rates go down when inflation goes up? ›
If you have a variable-rate loan, the interest rate on your loan will move up or down in line with interest rates on the market. When inflation is high, banks' interest rates may rise. As a result, the interest rate on your loan will also increase, and you will pay higher instalments.
What is the highest inflation rate in US history? ›
Key Takeaways
Inflation in the U.S. is measured by the consumer price index (CPI) calculated by the Bureau of Labor Statistics. The highest year-over-year inflation rate observed in the U.S. since its founding was 29.78% in 1778. Since the CPI was introduced, the highest inflation rate observed was 20.49% in 1917.
What is going on with interest rates? ›
Interest rates have held steady since July 2023.
At its March 2024 gathering the Fed decided to keep the federal funds target rate at 5.25% to 5.5%, where it has remained since July 2023.
The Fed on Wednesday said it is keeping the federal funds rate in a range of 5.25% to 5.5%, the same level it has held since the central bank's July 2023 meeting, which is its highest level in more than 20 years.
What is the current Fed rate today? ›
What is the current Fed interest rate? Right now, the Fed interest rate is 5.25% to 5.50%. The FOMC established that rate in late July 2023. At its most recent meeting in May, the committee decided to leave the rate unchanged.
Will Fed interest rates go down? ›
The Federal Reserve is likely to cut interest rates at least once in 2024, with the largest share of officials expecting three cuts. The timing and frequency of rate cuts will depend on a variety of factors, including inflation and the labor market.
What is the root cause of inflation? ›
The main causes of inflation can be grouped into three broad categories: demand-pull, cost-push, and. inflation expectations.
Who benefits from inflation? ›
Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.
Can inflation be reversed? ›
The reverse of inflation is called disinflation. The central bank can reverse inflation by implementing various tools: 1. Monetary policy: in monetary policy central bank generally increases the interest rate that reduces investment and economic growth.
Is the Federal Reserve the cause of inflation? ›
Monetary policy is a major cause of the increase in inflation, says Stanford economist John Taylor. Inflation rises when the Federal Reserve sets too low of an interest rate or when the growth of money supply increases too rapidly – as we are seeing now, says Stanford economist John Taylor.
How does the Federal Reserve track inflation? ›
A price index measures changes in the price of a group of goods and services. The Fed considers several price indexes because different indexes track different products and services, and because indexes are calculated differently. Therefore, various indexes can send diverse signals about inflation.
How does the Reserve Bank control inflation? ›
INFLATION? In 1989, the Reserve Bank was formally given the task of using monetary policy to control inflation. Since 1999, the Bank has done so by setting the 'Official Cash Rate' (OCR) – in other words, by setting the wholesale price of borrowed money.
