WASHINGTON — Federal Reserve officials held interest rates at their highest level in more than two decades at their first meeting of 2024 and hinted their next move will be to lower borrowing costs — even as policymakers made clear they are not yet ready to make that cut.
Jerome Powell, the Fed’s chair, said the country had “six good months” of moderating inflation, but officials wanted to see continued progress before lowering rates.
“We believe that our policy rate is likely at its peak for this tightening cycle and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said.
Powell said that he did not think it was “likely” that Fed officials would have enough evidence to cut interest rates by their next meeting March 19-20. That could leave investors looking toward later meetings — such as gatherings in May and June — as they consider when the first rate cut might come.
Wall Street had been hoping for imminent rate reductions, and stock prices slumped following the Fed’s meeting and Powell’s remarks. Investors increasingly bet that borrowing costs would remain unchanged in March.
Central bankers are trying to keep their options open as they try to strike a delicate balance. They do not want to keep interest rates too high for too long, crushing growth. At the same time, they do not want to lower rates prematurely, risking a rebound in demand that could keep inflation high.
The Fed’s key interest rate is set to a range of 5.25%-5.5%, up sharply from near-zero as recently as March 2022. High interest rates are meant to weigh on economic demand by making it more expensive to borrow money to buy a house or car or expand a business, and officials think that their current stance is high enough to meaningfully weigh on growth.
Given that, policymakers have held interest rates steady since July to see how their policy is affecting the economy — and they have received good news in recent months. Inflation has been coming down swiftly even as the job market remains solid and overall growth stays strong. That has stoked hopes that the economy might pull off a “soft landing,” one in which inflation returns to a normal pace without a painful recession.