The US Federal Reserve announced on Wednesday (June 12) that it will hold its benchmark interest rate steady at 5.25 to 5.5 percent following its two day Federal Open Market Committee (FOMC) meeting.
This marks the seventh time the central bank has maintained its policy since July 2023, when it last raised the rate.
The meeting occurred the same day as the release of May’s consumer price index (CPI) data from the Bureau of Labor Statistics. The data shows a 0 percent change in CPI month-on-month, down from April’s 0.3 percent increase. On a 12 month basis, CPI saw a 3.3 percent increase over last year, a slight decline from April’s 3.4 percent year-on-year gain.
The FOMC meeting came just days after the bureau released May’s jobs report numbers. In that release, the agency reported that employment remained strong, adding 272,000 jobs in May to beat analysts’ predictions of 185,000.
The Fed opted to maintain its rate against that backdrop as it continues to wait for more data, saying it wants more confidence that inflation is moving sustainably toward its target level of 2 percent.
In a press conference, Fed Chair Jerome Powell indicated that he is pleased the data provided to the committee showed improvement after stalling during the first part of the year, but declined to say when rate cuts may occur.
Citing the median projection for the Fed’s favored inflation measure, the Personal Consumption Expenditures Price Index, Powell said the expectation is it will fall to 2.6 percent this year, 2.3 percent next year and 2 percent in 2026.
He said economic uncertainty remains, although there has been modest progress. Powell added the central bank will remain attentive to inflation risks and will not move until there is more positive data to bolster its confidence.
“We know that reducing policy restraint too soon or too much could result in a reversal of the progress that we’ve seen on inflation. At the same time reducing policy restraint too late or too little could unduly weaken economic activity and employment,” he said. Based on assessments from FOMC participants, the federal funds rate is projected to be 5.1 percent in 2024, 4.1 percent in 2025 and 3.1 percent in 2026. Powell was careful to note that these are just projections and not a committee plan or decision; the Fed will continue to make its choices meeting by meeting.
Markets were mixed following the news. While it dropped sharply in midday trading, the S&P 500 (INDEXSP:.INX) ultimately saw a slight increase by the end of the trading day, closing up 45 points.
The Nasdaq-100 (INDEXNASDAQ:NDX) also posted a gain, moving up 1.33 percent to close at 19,465 points, and the Dow Jones Industrial Average (INDEXDJX:.DJI) saw a small loss to close at 38,712.
Meanwhile, precious metals prices saw high volatility throughout the day. The gold price spiked as high as US$2,340 per ounce following the release of the CPI data, and neared that mark leading up to the Fed decision.
The silver price followed the same pattern and broke above US$30 per ounce during both upward swings. However, both precious metals fell back down on the news that rates will not move. As of 4:00 p.m. EDT, gold was trading at US$2,321.26 and silver was trading at US$29.62, still above their prices at the start of the day.
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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.