The US has warned rates to remain high as it fights inflation

The US has warned rates to remain high as it fights inflation

The US central bank again said it would keep interest rates unchanged, citing a “lack of further progress” towards lowering inflation.

The decision left the Federal Reserve’s key rate hovering at its highest level in more than two decades, in the 5.25%-5.5% range, where it has been since last July.

By keeping borrowing costs high, the Fed hopes to cool the economy and reduce upward pressure.

But with inflation in the US proving more persistent than expected, the bank faces questions about its next move.

Analysts who had expected the bank to start cutting rates earlier this year have been forced to hold back their forecasts – with some even raising the possibility of a rate hike.

At a news conference following the announcement, Fed chairman Jerome Powell said he thought a rate hike was “unlikely”, reiterating that officials wanted greater confidence that inflation was easing before moving to cut.

“It really depends on the data,” he said.

“It will take longer to get to that comfort level. I don’t know how long it will take,” he added.

In the US, consumer prices rose 3.5% in the 12 months to March.

That’s down sharply from the 9.1% rate seen in June 2022, but remains above the Fed’s 2% target, ticking higher in recent months.

In its statement announcing its latest results on Wednesday, the Fed drew attention to the trend, saying “lack of further progress” in bringing inflation back to its goal.

“The statement clearly acknowledges the recent slowdown in inflation dynamics,” said Brian Coulton, chief economist at Fitch Ratings.

“Patience is the watchword now for the Fed and the risk of a rate cut or no rate cut this year is increasing.”

The Fed has left rates untouched since last July, after raising them aggressively from near zero in March 2022.

Higher interest rates flow to people in the form of more expensive mortgages, car and business loans and other debts.

The Fed’s moves are being watched closely around the world where many central banks, including the Bank of England, also have prolonged periods of sharply raised rates.

Mr Powell said policymakers in other countries may move faster than the US to cut rates due to concerns about an economic slowdown.

“The difference between the United States and other countries that are now considering rate cuts is that they don’t have the kind of growth that we’re experiencing,” he said. “We can be patient.”

Separately, the Fed also outlined its previously discussed plan to slow the rate at which it shrinks US Treasury holdings.

It built those holdings as part of its stimulus efforts to boost the economy when the pandemic hit in 2020, starting to reverse the move two years later.

Mr. Powell said the decision to slow down the process was intended to avoid disruption to financial markets and was not intended to influence the fight against inflation.

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