As expected, the U.S. Federal Reserve (Fed) kept its benchmark interest rate unchanged after its latest policy meeting. However, the central bank signaled that it is likely to raise interest rates two more times this year.
The Fed said that it could resume interest rate increases as soon as July and stressed that, while inflation has come down, it remains double its 2% annualized target.
Prior to the latest pause, the Fed had lifted interest rates 10 consecutive times over the past year to help lower consumer prices that peaked at 9.1% in June 2022.
The Fed Funds Rate in the U.S. now stands at 5.1%, its highest level in nearly 20 years.
Minutes from the latest central bank meeting show that its 18 policymakers expect to raise the key borrowing rate by an additional 50-basis points this year to 5.6%.
Fed officials also anticipate keeping the benchmark interest rate higher for longer than they assumed three months ago.
“We remain strongly committed to bring inflation back down to our two per cent goal,” said Fed Chair Jerome Powell at a news conference.
The Federal Reserves latest outlook forecasts growth of 1% for the U.S. economy in 2023, an upgrade from 0.4% forecast in March of this year.
Higher interest rates have made mortgages, car loans, and credit cards more expensive, with the average interest charged on credit cards in the U.S. now well above 20%.
In his remarks to media, Powell noted that core inflation remains stubbornly high. In May, core inflation, which excludes food and energy prices, was 5.3%, which is much higher than the Fed’s 2% target.
Powell also threw cold water on expectations for an interest rate cut by year’s end, saying that rates will likely need to remain elevated for several years to get inflation back in check.
Immediately after the Fed’s decision, U.S. stock markets declined and Treasury yields rose.