The Fed keeps interest rates at 23-year high for the fifth time

Washington, DC (CNN) — The Federal Reserve held its key interest rate steady Wednesday for the fifth consecutive meeting, as the central bank awaits more data to determine when to cut rates.

The Fed has raised rates aggressively over the past two years in a bid to fight the highest inflation in decades. But while Americans continue to deal with high interest rates and inflation, Fed officials are still not ready to bring down borrowing costs.

Wall Street is betting that the first rate cut will come in the summer.

Fed officials are facing the difficult task of balancing the risk of cutting too soon with the risk of cutting too late — both of which come with consequences. That’s why the timing of that first rate cut is so critical, because it could either undo the progress the Fed has seen, if officials cut too soon, or it could fail to prevent the economy from sharply deteriorating, if officials cut too late.

Fed officials also released a fresh set of economic projections, which show they now expect fewer rate cuts in the coming years than they estimated in December. A majority of Fed policymakers continue to expect three rate cuts this year, but they now see fewer in 2025 and 2026. They expect interest rates in the longer run to be slightly higher than they projected in December.

Economic growth is also expected to be much higher this year than officials estimated.

Officials also reflected in their latest estimates that they expect “core” inflation, a measure that strips out volatile food and energy prices, to be higher this year than previously thought.

The central bank’s policy statement remained mostly the same, but it omitted a phrase that said payroll growth moderated since early last year. Instead, it just notes that “job gains have remained strong, and the unemployment rate has remained low.”

An aerial view of the US economy

America’s economy remains solid by many measures. Economic growth in the first quarter is expected to register at a healthy 2.1% annualized rate, according to the Atlanta Fed’s latest projection, following two straight quarters of growth above a robust 3%. The job market is still humming along, with employers continuing to add jobs at a brisk pace while unemployment remains low. The jobless rate edged higher in February, to 3.9% from 3.7%, but it has remained below 4% for more than two years.

If the job market does weaken more than expected in the coming months, that could change the path of monetary policy.

“If you look historically, we’re high. And the longer we stay at that — if inflation continues falling — we’re going to have to start thinking about the employment side of the mandate,” Chicago Fed President Austan Goolsbee told CNBC earlier this month.

Inflation, meanwhile, continues to show progress but it has become evident there are some persistent price pressures in housing and the services sector. That could be worrisome for the Fed as it faces the final stretch of its historic inflation fight. Rising shelter costs and a sharp climb in gas prices pushed up consumer prices in February, according to the latest Consumer Price Index, and it’s possible that the US economy’s persistent strength could be standing in the way of any further improvement on the inflation front. Officials also consider the role of productivity when assessing growth, which boomed last year.

Consumer spending also remains healthy, but it has cooled down from the red-hot pace in the summer. Spending fell sharply in January, mostly due to the unseasonably cold weather, but the Commerce Department’s latest report on retail spending showed that there was a rebound in February. Broader figures on consumer spending in February are due later this month.

This story has been updated with additional developments and context.

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