Federal Reserve Keeps Rate Unchanged, But Nearly Half of Policymakers Would Support Hike This Year

💡 The Federal Reserve kept interest rates unchanged, but nearly half of policymakers would support a hike this year.

The Federal Reserve delivered a hawkish surprise on Wednesday, signaling that interest rate cuts remain further away than markets had hoped. Fed Chair Jerome Powell told reporters that the central bank needs "greater confidence" that inflation is sustainably declining before it will consider easing policy.

The 10-year Treasury yield surged to 4.8% in the aftermath, its highest level since October 2023. $TLT fell sharply as bond traders repriced the timing of the first cut from March to June.

Fed Signals Rates Higher for Longer

Powell's comments represent a significant shift from December's dovish pivot. The central bank's dot plot, which reflects the policy rate forecasts of individual policymakers, shows that nearly half of the Fed's 18 policymakers would support a rate hike by the end of 2024.

Inflation Pressures Remain

The Fed's decision to keep rates unchanged comes as inflation continues to weigh on the US economy. The Consumer Price Index (CPI) rose 3.2% year-over-year in May, slightly higher than the 2.9% increase in April. The Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, also rose 2.3% in May.

Economic Growth Concerns

The Fed's decision to keep rates unchanged also reflects concerns about the US economy's growth prospects. The Atlanta Fed's GDPNow model estimates that the US economy will grow 1.7% in the second quarter, down from its previous estimate of 2.1%.

What It Means for Investors