The Federal Reserve announced that it will maintain the federal funds rate within the target range between 5.25 and 5.5 percent, noting that inflation remains above the Fed’s 2 percent target despite positive job gains and persistently low unemployment.
The Federal Open Market Committee (FOMC) recommended rates remain unchanged again based on risk indicators affecting employment and its inflation goals and uncertainty in its economic outlook.
“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 percent,” the release said. “In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The committee is strongly committed to returning inflation to its 2 percent objective.”
Fed Chair Jerome Powell commented there are indicators of positive employment numbers while noting obstacles the economy must overcome before a rate cut will be appropriate, including higher than expected inflation numbers earlier this year.
“In the labor market, supply and demand conditions have come into better balance,” Powell said. “Payroll job gains averaged 218,000 jobs per month in April and May, a pace that is still strong but a bit below that seen in the first quarter. The unemployment rate ticked up but remains low at 4 percent. Strong job creation over the past couple of years has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a continued strong pace of immigration. Nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed.”
Overall, Powell acknowledged the FOMC has recognized conditions in the labor market returning closer to pre-pandemic levels, which were “relatively tight but not overheated.” He added that if inflation were to drop significantly or the labor market were to weaken unexpectedly, the Fed is “prepared to respond.”
“The Fed has been assigned two goals for monetary policy – maximum employment and stable prices,” Powell said. “We remain committed to bringing inflation back down to our 2 percent goal and to keeping longer-term inflation expectations well anchored. Restoring price stability is essential to achieving maximum employment and stable prices over the long run. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.”
The FOMC outlined other considerations in its implementation note issued following its latest meeting:
- “Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.5 percent and with an aggregate operation limit of $500 billion.
- “Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.3 percent and with a per-counterparty limit of $160 billion per day.
- “Roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing in each calendar month that exceeds a cap of $25 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
- “Reinvest the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.
- “Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
- “Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.”
The FOMC said it will continue to reduce its holdings of Treasury securities and mortgage-backed securities to support its policy objectives. It will only recommend lowering the target range once the committee has greater confidence that inflation is firmly on course to reach the 2 percent target. The committee has been consistent in its conviction with respect to inflation numbers, which it has referred to as too high for comfort in the opening months of the year.
Following the release of the robust job growth reported by the U.S. Department of Labor in May, Wall Street traders downgraded their forecast for Fed rate cuts from two to one this year.