Fed leaves interest rates alone, still plans 3 cuts

Powell says central bank won’t overreact to recent months’ shaky inflation data

The Federal Reserve said it is still eyeing three interest rate cuts this year, as officials wait for a bit more confidence inflation is reliably falling to more normal levels.

As the Fed left interest rates unchanged Wednesday, central bank chairman Jerome Powell did not give a specific timeline for future cuts, saying any decisions depend on how the economy unfolds. But higher-than-expected inflation data from the first few months of the year poses a challenge for policymakers: At this point, they’re still filling in a picture of whether those discouraging readings are just a blip or something more concerning.

At a news conference after the Fed’s two-day meeting, Powell said officials were careful not to overreact to January and February data. But they aren’t ignoring it, either, as they try to wrestle inflation back down to their 2% target.

Recent reports “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road,” Powell said. “I don’t think that story has changed. I also don’t think that those readings added to anyone’s confidence that we’re moving closer to that point.”

As expected, central bankers left the benchmark interest rate steady at between 5.25% and 5.5%, the highest level in 23 years. Still, financial markets, analysts, businesses and consumers are eager for a more precise timeline on when the Fed will decide to trim rates. Major stock indexes ticked up on the Fed news, after remaining flat for much of the day.

Inflation has eased considerably since soaring to 40-year highs. But price growth is still too fast, and the Fed isn’t ready to declare victory until officials are more certain inflation is back under control.

“We will achieve that goal,” Powell said. “Markets believe we will achieve that goal, and they should believe that, because that’s what will happen over time. But we stress over time.”

Fed officials avoid putting too much weight on one or two individual inflation reports, and Powell emphasized that point, taking a long view, said Skanda Amarnath, executive director of Employ America, a liberal think tank.

“Powell is giving more of a leash, more margin for error, so no individual data release is make or break,” Amarnath said. “They’re not going to be changing their story radically month to month.”

Slowing progress, though, are high costs for housing and rent, which continue to be a major driver of inflation. Powell continues to insist official statistics in key inflation measures are delayed and don’t reflect real-time measures, which show rents either stabilizing or falling in major cities.

“There’s a little bit of uncertainty about when that will happen, but there’s real confidence that they will show up, eventually, over time,” Powell said.

Still, many observers are skeptical the Fed will be able to wrestle price growth to normal levels until housing cools, too.