The Federal Reserve held its key federal funds interest rate at about 5.5% for March as it continues to fight persistent inflation in the economy.
In its latest statement, the central bank’s Federal Open Market Committee noted that job gains remain strong and unemployment remains low, while price growth remains elevated, even as it has cooled since peaking in 2022.
As a result, the committee said it intends to keep the interest rate at the current level until it has more confidence that inflation is on a sustained track toward its official 2% goal.
The current rate has been in place since July, and has led to a surge in the cost of borrowing.
The Fed’s actions are part of a long-standing monetary practice with a simple goal. By making it more expensive to borrow money, whether through loans, credit cards or other financial tools, people and businesses will spend less and inflation will fall to a desirable level — in this case, 2%.
But over essentially the same period, the pace of price increases as measured by the Consumer Price Index has stalled at a little more than 3% on an annual basis, sparking concerns that the central bank will have to keep rates higher for longer.
Many economic observers believe the soonest the Fed could now begin cutting interest rates is at its June meeting, with two additional rate cuts before the end of this year, depending on whether the inflation rate remains above the Fed’s official 2% target.
Where is that ongoing inflation coming from?
Much of it has been in measurements for the cost of shelter, which take into account two different categories: the cost to rent a place, and how much rent a homeowner could collect from their own residence if they were renting it out.
Many analysts say those costs are likely to start coming down, thanks to building booms in cities that saw high levels of post-pandemic population growth — especially in Sun Belt cities like Austin and Atlanta.
But housing costs have so far defied expectations…
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