JUNE 20, 2023 – FED HOLDS RATES STEADY, AS INFLATION SLOWED TO 4 PERCENT IN MAY
The US Bureau of Labor Statistics announced on Tuesday; just as the Fed’s policy meeting was about to convene; that US CPI rose in May by 4 percent, the lowest reading in two years, down almost 1 percent from the 4.9 percent rate experienced in April. This was the 11th month in a row inflation ticked down. However, core CPI (excludes energy and food prices) remained high at 5.3 percent, with housing costs being the greatest contributor up 8 percent year-over-year.
Taking the inflation data into account, the Fed chose not to raise rates for the first time in 10 months, instead waiting to assess the impact of past hikes on the economy. The federal funds rate remains in the range of 5 to 5.25 percent. The Fed officials said rate increases could resume later in the year, with two more quarter-point moves, as inflation remains well above their 2 percent target. The median expectation is for the federal funds rate to reach 5.6 percent by the end of 2023.
The policymakers released updated economic projections at the meeting; they are forecasting the economy will grow by 1 percent in 2023, up from March’s estimate of 0.4 percent growth. They are expecting inflation to drop to 3.2 percent by year’s end, and 2.5 percent in 2024.