Fed cites lack of progress on inflation, holds rates steady

"In recent months, there has been a lack of further progress toward the committee's 2% inflation objective," the Federal Open Market Committee said in a statement Wednesday at the conclusion of a two-day meeting in Washington. That represented an addition to phrasing introduced in December saying that inflation "has eased over the past year but remains elevated."

In another change, the Fed said that risks to achieving the Fed's and inflation goals "have moved toward better balance over the past year," referring to the progress in the past tense. The previous statement said the goals were "moving into better balance."

Policymakers stopped short of signaling they would consider raising rates again.

The S&P 500 index rose, while the 2-year Treasury yield and the Bloomberg Dollar Spot Index fell.

Officials also outlined plans to slow the pace at which the central bank is shrinking its asset portfolio. The Fed will cut the cap on runoff for Treasuries to $25 billion a month from $60 billion beginning in June, in a bid to reduce the risk of financial-market turbulence that struck during the previous round of balance-sheet trimming in 2019.

The cap for mortgage-backed securities remained unchanged at $35 billion, though the Fed will in June reinvest any principal payments above the cap into Treasuries instead of MBS.

On the balance sheet, policymakers generally agreed at the Fed's previous meeting in March that it would be appropriate to take a cautious approach toward further runoff - a process known as quantitative tightening, or QT - given market turmoil in 2019, minutes from the meeting showed.

Officials have stressed that the decision to slow QT is independent of and their timing. Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. in Washington.

While price pressures cooled rapidly in the final months of 2023, progress toward the central bank's 2% inflation goal has stalled in 2024. Meantime, the economy continues to expand on the back of a strong labor market and steady consumption and investment.

Wednesday's statement reiterated that job gains have "remained strong" with a low unemployment rate, while the economy has expanded at a "solid pace."

Data out Tuesday showed employment costs climbed in the first quarter at the fastest pace in a year, topping expectations and pointing to robust wage growth.

Three straight months of disappointing inflation figures have driven a major repricing of interest-rate expectations, with futures markets now showing just one cut this year.