The Federal Reserve opted to keep interest rates high on Wednesday as progress toward lowering inflation stalled.
The move will delay the Fed's anticipated rate cuts this year, but the central bank stuck to its previous forecast of three rate cuts by the end of 2024.
The federal funds rate is hovering between 5.25% and 5.5%, its highest level since 2001.
The decision came about a week after the latest inflation data showed that inflation rose in February, the latest sign that efforts to rein in prices were hitting an uphill climb.
Inflation has fallen significantly from a peak of 9.1%, but is still more than a percentage point above the Fed's 2% target rate.
Federal Reserve Chairman Jerome Powell, speaking in Washington, D.C., on Wednesday, said the central bank has made progress in fighting inflation, but vowed to keep interest rates high to get the job done.
“While inflation has moderated significantly over the past year, it remains above our 2 percent objective,” Powell said. “If appropriate, we are prepared to maintain the current target range for the federal funds rate for an extended period of time.”
The Federal Open Market Committee, the central bank's top policy-making body, reiterated a similarly patient stance on high interest rates in a statement on Wednesday.
“The Committee does not believe it would be appropriate to lower its target range until it has greater confidence that inflation is moving sustainably toward 2 percent,” the FOMC said.
The move will give the Fed additional time to monitor price developments before cutting interest rates further.
Speaking to House lawmakers on Capitol Hill earlier this month, Powell reaffirmed the Fed's plans to cut interest rates this year but cautioned that the central bank wants to see inflation fall first.
“The economic outlook is uncertain and continued progress toward our 2 percent inflation goal is not assured,” Powell told lawmakers.
This is the fifth consecutive meeting in which the Fed has kept interest rates on hold, signaling an extended pause in the aggressive rate-hiking cycle that began in March 2022. The next interest rate decision is due in early May.
On top of persistent inflation, the economy has all but defied expectations of a slowdown due to rising borrowing costs. The combination of rising price inflation and better-than-expected economic performance puts central banks in a difficult position.
Lowering interest rates would lower borrowing costs for consumers and businesses and could spark a burst of economic activity through increased household spending and business investment.
However, there is a risk that inflation could rise again if the Fed cuts interest rates too quickly, as strong economic activity and rising consumer demand could lead to faster price increases.
Data released by the Bureau of Labor Statistics earlier this month showed that U.S. job growth in February was much stronger than expected.
Customers shop at a supermarket in Millbrae, California, on February 13, 2024. Xinhua News Agency via Getty Images
The U.S. added 275,000 jobs in February, beating expectations of a gain of about 200,000 but down significantly from about 350,000 jobs in January, according to BLS data.
The S&P 500, the index that most people's 401(k) plans track, hit a record high earlier this month.
Feelings about the economy have improved in recent months: A University of Michigan survey showed consumer confidence fell slightly in February but maintained much of the strong gains it had made over the past few months.
Still, some sectors of the economy are cooling.
The housing market has slowed significantly, primarily due to rising mortgage rates.
The average interest rate on a 30-year fixed mortgage rebounded after a steady decline late last year, jumping to 6.74%, according to a report released Thursday by Freddie Mac.
Chairman Powell told lawmakers last week that the overall picture of economic developments leaves the Fed unwavering in its commitment to lowering inflation to its 2% target.
“We remain fully committed,” Powell said.