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By Yasin Ebrahim
Investing.com — The Federal Reserve signaled interest rates could likely remain higher for longer than previously expected on stalling disinflation, but downplayed the possibility of rate hikes following an unchanged rate decision on Wednesday.
In recent months, there “has been a lack of further progress toward the Committee’s 2 percent inflation objective,” the Federal Open Market Committee, the FOMC, said in a statement as it kept its benchmark rate in a range of 5.25% to 5.5%.
Since the turn of the year, inflation data have surprised to the upside, forcing investors to rein in their bets on rate cuts. Investors now only expected one rate cut this year, according to Investing.com’s Fed Rate Monitor Tool, well below the six or seven seen at the start of the year.
In the press conference that followed the monetary policy statement, Fed chairman Powell acknowledged that the recent upside surprises in the inflation data would likely delay the start of rate cuts, but also ruled out the prospect of resuming rate hikes.
“it is unlikely that next policy rate move would be a hike,” Powell said Wednesday, though acknowledged that progress on inflation had stalled in recent months.
“So far this year, the data have not given us that greater confidence” to begin rate cuts, Powell said Wednesday. It is likely that gaining such greater confidence will take longer than previously expected,” the chief added.
The Fed also said it would begin to slow its balance sheet reduction, or quantitative tightening program next month, which was launched in 2022 to shrink the assets it holds on its balance sheet.
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Beginning in June, the Fed will allow about $25 billion in Treasury securities to roll off its balance sheet a month, down from the current monthly pace of $60 billion.
The $25B cap in the amount of Treasuries that the Fed will allow to roll off its balance sheet is “below our $30bn expectation, which implies a marginally slower pace of runoff, but not by much,” BofA said in Wednesday note.
“The justification for taper was widely telegraphed and did not come as a surprise,” it added.
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