The Federal Reserve keeps interest rates steady as anticipated, but cautions about high inflation levels

The US Federal Reserve maintained interest rates steady following its policy meeting that concluded on Wednesday, as widely anticipated. The Fed hinted at future reductions in borrowing costs but also cautioned about unexpectedly high inflation figures that could delay the onset of policy easing.

Fed Chair Jerome Powell mentioned that increased inflationary pressures in the first quarter of 2024 might require more time than initially projected for policymakers to feel confident that inflation will continue its downward trajectory towards the 2% target, which was the case for most of last year.

Although inflation has risen in recent months, Powell clarified that no rate hikes are on the agenda at this time, signaling that the current policy rate range of 5.25%–5.50%, unchanged since July, may remain in place for a while longer.

The Fed holds the view that the existing policy rate is sufficiently restrictive to exert pressure on economic activity and achieve control over inflation. However, it will hold off on reducing rates until it is certain that all key factors influencing its decision are at desired levels.

Markets interpreted the Fed chief’s latest comments as less hawkish than expected, particularly because the central bank remains committed to a path of policy easing and further interest rate increases seem unlikely despite the current economic uncertainty, which has sparked renewed optimism.