That continues to leave the timing of any rate cut in doubt, and Fed officials made emphatic their concern that the first months of 2024 have done little to build the confidence they seek in falling inflation.

“In recent months, there has been a lack of further progress towards the Committee’s 2 per cent inflation objective,” the Fed said in its statement. Where the prior statement in March suggested an improving dynamic, saying that the risks to the economy “are moving into better balance,” the new statement hinted that the process may have stalled with its assessment that risks “have moved toward better balance over the past year.”

“The Committee marked to market on inflation by noting that Q1 data didn’t show the additional progress that they hoped to see, but the statement also suggested that they would not view further labor market strength through an inflationary lens,” said Omair Sharif, president of Inflation Insights.

The US central bank also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only $US25 billion ($38.3 billion) in Treasury bonds to run off each month versus the current $US60 billion. Mortgage-backed securities will continue to run off by up to $US35 billion monthly.

The step is meant to ensure the financial system does not run short of reserves as happened in 2019 during the Fed’s last round of “quantitative tightening.”

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While the move could loosen financial conditions at the margin at a time when the US central bank is trying to keep pressure on the economy, policymakers insist their balance sheet and interest rate tools serve different ends.

The benchmark policy rate has been held in the current 5.25 per cent-5.50 per cent range since July. Rate cuts had been anticipated as early as March of this year, but have been pushed back as incoming inflation data showed that progress towards the 2 per cent target had stalled. The personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, increased 2.7 per cent in March on a year-over-year basis.

“Inflation remains elevated,” the Fed’s policy statement said, repeating a phrase that many analysts feel will likely need to be removed as a precursor to an initial rate reduction.

The statement maintained its overall assessment of economic growth, saying that the economy “continued to expand at a solid pace. Job gains have remained strong and the unemployment rate has remained low.”

Reuters

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