The US Federal Reserve decided to keep interest rates at a 23-year high of 5.25-5.50% after recent economic reports showed inflation was not easing as quickly as hoped. Fed Chair Jerome Powell said inflation was still too high and rate cuts would not be considered until there was more confidence that prices were falling towards the 2% target.
During a news conference after the two-day policy meeting, Powell stated that gaining this confidence would take longer than expected and they were prepared to keep the current federal funds rate as long as necessary. He emphasized the uncertainty in the path forward and how rate cuts would depend on future data.
While the Fed’s preferred inflation index has decreased from its peak in 2022, it still remains above the 2% target at 2.7%. Powell mentioned that it was unlikely for the next policy rate move to be a hike at the June meeting. The announcement led to a rally in US stocks initially, 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.