After eleven rate hikes since March 2022, the Fed once again left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5%. This decision was unanimous and marks the sixth straight meeting they held rates steady. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. The Fed has been aggressively hiking the Fed Funds Rate throughout this cycle to try to slow the economy and curb the runaway inflation that became rampant over the last few years.
What’s the bottom line? After some recent inflation readings were hotter than expected, some economists wondered if the Fed would resume hikes to the Fed Funds Rate. However, Fed Chair Jerome Powell emphasized a hike was “unlikely,” adding that the Fed would instead keep the Fed Funds Rate at its current level if tighter conditions were warranted. Powell also reiterated that the Fed does not expect to cut rates until members are confident that inflation is moving sustainably towards their 2% target as measured by annual Core Personal Consumption Expenditures, which is at 2.8% as of March.
However, a sharp rise in the unemployment rate (which has been in a narrow range between 3.7% and 3.9% since August) could also impact the timing for rate cuts. While the Fed’s latest forecasts showed that seventeen of nineteen Fed members don’t see the unemployment rate rising above 4.1%, an increase over this level could pressure the Fed to cut rates, given their dual mandate of price stability and maximum employment.