Fed Leaves Rates Steady but Forecasts More Moves to Come

Federal Reserve officials left interest rates unchanged on Wednesday, skipping a rate increase after raising them 10 times in a row even as officials predicted that rates will need to rise higher this year.

Fed officials, in their policy statement, said that they were giving themselves time to assess how the economy is reacting to what has been a rapid campaign to slow demand and wrestle fast inflation back under control. The central bank has raised rates to a range of 5 to 5.25 percent over a little more than a year.

But officials predicted that they might raise interest rates even further — to 5.6 percent by the end of 2023 — based on fresh economic forecasts. That suggests policymakers expect to make two more rate increases, a clear signal that Fed officials remain concerned about inflation and think that they may need to do more to cool growth and control price increases.

Holding rates steady “allows the committee to assess additional information and its implications for monetary policy,” the Fed said in its post-meeting statement.

”We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt,” Jerome H. Powell, the Fed chair, said at a news conference following the release.

Fed officials try to keep inflation climbing at a pace of 2 percent a year, but its rise has been much more rapid than that since early 2021. That is why central bankers have been rapidly raising interest rates, making mortgages and business loans more expensive in a bid to cool the economy, causing consumers to pull back and forcing companies to stop raising prices so much.

But 15 months into their fight to wrestle inflation lower, Fed officials want to give themselves more time to assess how their policy is playing out in the economy. Central bankers voted unanimously on the decision to leave interest rates unchanged.

Just because Fed officials are moving into a new and more patient stage of their war against rapid price increases does not mean that they are giving up on their push to cool inflation. Central bankers have already moved rates up notably, to about 5.1 percent, and those changes are still trickling through and weighing on the economy. And the prospect of further rate increases this year could reinforce to both investors and the public that officials are not necessarily done adjusting policy.

In their updated economic projections, released Wednesday for the first time since March, central bankers said that inflation could finish 2023 at 3.2 percent, and at 3.9 percent after stripping out food and fuel prices. That projection of the so-called core measure was notably higher than the 3.6 percent officials had forecast in March, and underscored that officials are increasingly worried that price increases could prove very stubborn.

Policymakers want to be sure that they slow the economy enough to ensure that inflation returns to their goal.

If officials fail to raise rates enough to bring inflation under control in a timely way, consumers and business could come to expect steadily higher prices and adjust their behavior accordingly: Workers could ask for bigger annual wage increases, firms could push prices up more regularly, and in general it could become harder to stamp out inflation.

But central bankers also want to avoid lifting rates too much and plunging the economy into an unnecessarily steep slowdown. Doing so would cost Americans their jobs and undermine financial security for families across the economy.

That delicate exercise is made more complicated by conflicting economic data in recent months. Hiring is holding up and the housing market show signs of stabilizing in spite of notably higher interest rates, even as manufacturing indicators have softened and jobless claims have recently ticked up.

“Considering how far and how fast we’ve moved, we judged it prudent to hold the target range steady,” Mr. Powell said. In determining whether to raise rates again — and by how much — officials will take into account their moves so far and how the economy is shaping up, he said.

“We remain committed to bringing inflation back down to our 2 percent goal,” he said.

Jeanna Smialek writes about the Federal Reserve and the economy for The Times. She previously covered economics at Bloomberg News.  @jeannasmialek

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