The Federal Reserve held interest rates steady for the fourth straight meeting and signaled its openness to cutting them, though not necessarily right away.
"We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year," Fed Chair Jerome Powell said Wednesday. "We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate."
Powell spoke just after the Fed issued a statement following their two-day meeting, where officials dropped their previous assertion that a rate hike was possible and instead adopted a more even-handed assessment of the future policy path.
"The committee judges that the risks to achieving its employment and inflation goals are moving into better balance," the central bank's policy-making Federal Open Market Committee said. "In considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks."
But in a sign that officials are not in a rush to reduce rates, the FOMC also said it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%."
U.S. Treasury yields pared declines, while the S&P 500 index remained lower. Investors also reduced the total amount of Fed easing priced for 2024, according to interest-rate swaps.
When pressed by reporters on what policymakers need to see in order to bolster confidence inflation is headed toward 2%, Powell said officials want to see a continuation of the "good" data seen in recent months, referencing half a year of favorable inflation figures. "We just need to see more," he said.
The decision to leave the target range for the benchmark federal funds rate unchanged at a 22-year high of 5.25% to 5.5% was unanimous. The central bank also reiterated its intention to continue reducing its balance sheet by as much as $95 billion per month.
Statement Changes
In their post-meeting statement, policymakers tweaked their description of economic activity. Following stronger-than-expected economic growth in the fourth quarter, the committee described activity as "expanding at a solid pace."
Among other changes to the statement, the committee omitted language that had been included in some form since last March, calling the banking system "sound and resilient" and warning that tighter credit conditions were likely to weigh on the economy.
As usual at the start of the year, the January meeting brought a rotation of new voters to the FOMC, including the presidents of the Fed's regional banks in Atlanta, Cleveland, Richmond and San Francisco.
The FOMC also used its first meeting of the year to reaffirm its long-term goals and monetary policy strategy, including its commitment to a 2% average inflation target.
