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The Federal Reserve has decided to keep interest rates steady for the seventh consecutive time amid ongoing high inflation. This decision was announced on Wednesday (June 12) and comes after a report from the Labor Department showed that inflation slowed more than expected in May, even though prices remained high for many Americans.
The Federal Reserve's new quarterly economic projections suggest that rates will fall to just 5.1% by the end of 2024, indicating only one quarter-point rate cut this year. This is a significant change from the three rate cuts predicted in March.
While inflation has decreased considerably from its peak, price pressures have proven more persistent than anticipated. The Fed's preferred gauge shows that inflation is running at a 2.7% pace, significantly above the central bank's 2% target. When excluding food and energy, the underlying core inflation is even higher at 2.8%.
In 2022 and 2023, policymakers raised interest rates sharply to the highest level in over two decades in an attempt to slow the economy and cool inflation. Officials are now grappling with when to ease these measures. They entered 2024 expecting to reduce rates at least three times this year, but have repeatedly delayed their plans, even though inflation eased in both April and May.
The latest forecasts suggest that most central bankers anticipate the unemployment rate will end the year at 4%, the same as the March estimate. They also predict that inflation will cool to just 2.6% at the end of 2024, higher than the 2.4% forecast in March, before falling to 2.3% in 2025.