Fed holds interest rates steady, postponing rate cuts amid stubborn inflation

The Federal Reserve held interest rates steady on Wednesday, opting to keep rates highly elevated as progress toward lower inflation has stalled.

The move pushes back rate cuts that the central bank expects to make some time this year. But the Fed stuck to its previous projection of three rate cuts by the end of 2024.

The Fed Funds rate remains between 5.25% and 5.5%, matching its highest level since 2001.

The decision arrives roughly a week after fresh inflation data showed inflation ticked up in February, the latest sign that progress toward cooling prices had struck a rough patch.

Inflation has fallen significantly from a peak of 9.1% but it remains more than a percentage point higher than the Fed's target rate of 2%.

Speaking in Washington, D.C., on Wednesday, Fed Chair Jerome Powell said the central bank's inflation fight has achieved progress. But he vowed to keep interest rates elevated to complete the job.

"Inflation has eased notably over the past year but remains above our target rate of 2%," Powell said. "We are prepared to maintain the current target range for the federal funds rate for longer if appropriate."

In a statement on Wednesday, the Federal Open Market Committee, the central bank's top policymaking body, echoed such patience with high interest rates.

"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," the FOMC said.

The move affords the Fed additional time to observe price movements before going forward with interest rate cuts.

Addressing House members at the Capitol earlier this month, Powell reaffirmed the Fed's plans to cut rates this year but cautioned that the central bank first wants to see inflation fall lower.

"The economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured," Powell told lawmakers.

This is the fifth meeting in a row at which the Fed has left rates unchanged, marking a prolonged pause of the aggressive rate hiking cycle that started in March 2022. The next rate decision will take place at the beginning of May.

Alongside stubborn inflation, the economy has largely defied expectations of a slowdown imposed by elevated borrowing costs. That combination of elevated price increases and stronger-than-expected economic performance puts the central bank in a difficult position.

Interest rate cuts would lower borrowing costs for consumers and businesses, potentially triggering a burst of economic activity through greater household spending and company investment.

But the Fed risks a rebound of inflation if it cuts interest rates too quickly, since stronger consumer demand on top of solid economic activity could lead to an acceleration of price increases.

U.S. job gains far exceeded expectations in February, U.S. Bureau of Labor Statistics data earlier this month showed.

The U.S. added 275,000 jobs in February, surpassing predictions of about 200,000 jobs added, but marking a substantial decline from the hiring of roughly 350,000 workers in January, according to BLS data.

The S&P 500 -- the index that most people's 401(k)'s track -- reached a record high earlier this month.

Attitudes about the economy have improved in recent months. Consumer sentiment inched lower in February but preserved much of the large gains achieved in previous months, a University of Michigan survey found.

Still, some areas of the economy have cooled.

The housing market has slowed substantially due in large part to soaring mortgage rates.

The average interest rate for a 30-year fixed mortgage has soared to 6.74%, rebounding after a steady decline at the end of last year, according to a report from Freddie Mac on Thursday.

Taken together, economic performance has not shaken the Fed's steadfast pursuit of lowering inflation down to its goal of 2%, Powell told federal lawmakers last week.

"We remain committed," Powell said.