Federal Reserve Chairman Jerome Powell and his colleagues voted on Wednesday to keep interest rates steady in an effort to tame stubborn inflation. Saul Loeb/AFP Hide caption
Toggle caption Saul Loeb/AFP
The Federal Reserve kept interest rates steady on Wednesday, signaling it expects to cut rates only once this year.
The decision and outlook for rate cuts came hours after the Labor Department reported that inflation showed a modest but welcome easing last month.
The Federal Reserve has kept its benchmark interest rate at its highest level in more than two decades since last July, making borrowing more expensive for auto loans, business loans and credit card balances.
Fed policymakers still expect to cut interest rates later this year, but in projections released at the end of the two-day meeting, policymakers on average expect just one quarter-point cut by the end of the year, down from the three cuts they predicted in March.
Inflation has proven more resilient than expected, preventing the Fed from cutting rates more aggressively, and policymakers want more evidence that inflation is falling again toward their 2% target before they start cutting rates.
The latest cost of living report, also released Wednesday, offers encouraging signs that inflation is heading in that direction.
Consumer prices rose 3.3% in May from a year earlier, a slower annual rate of increase than the previous month. The consumer price index was stable from April to May as falling gasoline prices offset higher rent and dining out costs.
The economy remains strong
High borrowing costs have weighed on some parts of the economy, particularly the housing market, but so far they have not hurt employment, which rose steadily to 272,000 in May and average wages rose 4.1% from a year earlier.
Wages have been rising faster than prices for more than a year, effectively increasing workers' purchasing power.
But rapid wage growth could also put upward pressure on prices, making it harder for the Fed to contain inflation.