WASHINGTON: The Federal Reserve left its benchmark interest rate unchanged Wednesday for the second time in its past three meetings, a sign that it’s moderating its fight against inflation as price pressures have eased.
The Fed’s policymakers also signaled that they expect to raise rates again this year and envision their key rate staying higher in 2024 than most analysts had expected.
But as their latest policy meeting ended, the 19 members of the Fed’s rate-setting committee conveyed growing optimism that they will manage to slow inflation to their 2 percent target without causing the deep recession that many economists had feared. It’s a hopeful scenario that economists call a “soft landing.”
In a set of new quarterly projections, the policymakers showed that they expect faster economic growth and lower unemployment this year and next year than they had foreseen just three months ago. Even with solid growth, they also think inflation will continue to cool.
Those expectations suggest that Fed officials feel “they’re going to be able to do what it takes to achieve gradual disinflation without disruption to the labor market, or without triggering a meaningful recession,” said Subadra Rajappa, head of rates strategy at Societe Generale.
Since peaking at a year-over-year high of 9.1 percent in June 2022, consumer inflation in the United States has dropped to 3.7 percent. Speaking at a news conference Wednesday, Chair Jerome Powell cautioned that the Fed still wants further assurance from forthcoming economic data that inflation is on a sustainable path back to its target level. But he suggested that the Fed is approaching the end of its rate-hiking cycle and that a soft landing seems “plausible.”
“We’re fairly close, we think, to where we need to get,” Powell said. “A soft landing is a primary objective. ... That’s what we’ve been trying to achieve all this time.”
The Fed’s latest decision kept its benchmark rate at about 5.4 percent, resulting from the 11 rate increases it unleashed beginning in March 2022. Those rapid hikes, Powell said, now allow the central bank to take a more measured approach to its rate policy.