May FOMC meeting concludes with no changes to interest rates

The Federal Reserve is looking for more confidence that inflation is headed back towards its 2% target before commencing with rate cuts. 

The Federal Reserve (Fed) remains entrenched in its hold-higher-for-longer stance regarding the federal funds rate, as it elected to keep the target range at 5.25%-5.50% at the April 30-May 1 Federal Open Market Committee (FOMC) meeting.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two percent,” the meeting statement read.

The Fed’s higher-for-longer stance has been reinforced by recent readings on inflation coming in above expectations.

“It is likely that gaining such greater confidence will take longer than previously expected,” said Fed Chair Jerome Powell in his post-meeting press conference. “We are prepared to maintain the current target federal funds rate for as long as appropriate.”

It is the sixth consecutive FOMC meeting during which the Fed decided to hold interest rates steady. The last rate hike was back in July 2023. The Fed’s cumulative total increase sits at 525 basis points (bps) since March 2022, and the federal funds rate remains at its highest mark in over 20 years.

“While there was no change to interest rate policy, the Fed and Chairman Powell delivered much better-than-feared messaging to the markets on multiple fronts,” said Raymond James Chief Investment Officer Larry Adam. "They stated the dual-mandate goal of employment and inflation ‘have moved toward better balance over the past year,’ suggesting that some of the worry in recent months about the resurgence in inflation may be overblown. Additionally, the Fed is focused on keeping interest rates stable for now and that the bar for raising interest rates – a recent fear of the market – is very high. The next move, eventually, should still be a rate cut.”

The FOMC did elect to continue to reduce its holdings of Treasurys, agency debt, and agency mortgage-back securities at a reduced pace. The FOMC meeting statement notes: “Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The monthly redemption cap on agency debt and agency mortgage-backed securities will remain at $35 billion while investing any principal payments in excess of this cap into Treasury securities.”

Powell reiterated that the Fed remains strongly committed to bringing inflation down to its stated 2% target.

“In recent months, inflation has shown a lack of further progress toward our two percent objective,” said Powell. “Inflation is still too high. Further progress in bringing it down is not assured and the path forward is uncertain.”

The next FOMC meeting takes place June 11-12, and will include an updated Summary of Economic Projections.

All expressions of opinion reflect the judgments of the Raymond James Chief Investment Officer and Raymond James Chief Economist and are subject to change.

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