The US Federal Reserve has decided to maintain interest rates at their highest level in 23 years of 5.25-5.50% after recent economic reports indicated that inflation was not decreasing as quickly as expected. Fed Chair Jerome Powell stated that inflation is still too high and rate cuts will only be considered once there is more certainty that prices are falling towards the 2% target.
In a news conference following the two-day policy meeting, Powell said gaining this confidence would take longer than anticipated and they were prepared to keep the current federal funds rate for an extended period. He emphasized the uncertainty in the path forward and how rate cuts would depend on future data.
Despite a decrease in the Fed’s preferred inflation index from its peak in 2022, it remains above the 2% target at 2.7%. Powell mentioned that it is unlikely for the next policy rate move to be a hike at the June meeting. The announcement led to an initial rally in US stocks, but they mostly ended down as investors processed the decision.
The S&P 500 saw an increase of 1.2% before closing at 0.3%, while London’s FTSE 100 fell by 0.3%. In Asia, Japan’s Nikkei 225 index was down by 0.64% in early trading, while markets in Hong Kong and Shanghai were closed for a holiday.
