Fed leaves rates unchanged as expected, but warns about elevated inflation

The US Federal Reserve kept interest rates unchanged at policy meeting which ended on Wednesday, as widely expected and signaled it is still leaning towards eventual reductions in borrowing costs, but warned about recent hotter than expected inflation numbers that could delay the start of policy easing.

Fed Chair Jerome Powell said that increased price pressures in the first three months of 2024, may take longer than initially estimated for policymakers to become comfortable that inflation will resume the decline towards 2% target that was the case during the most of last year.

Although inflation returned to the upward trajectory in past few months, Powell said rate increases are not on the table for now but signaled that the benchmark policy rate in the 5.25%-5.50% range, in place since July, may stay unchanged for some more time.

The Fed believes that the current policy rate is restrictive enough to put adequate pressure on economic activity and bring inflation under full control, though not in rush to start cutting rates until confident that all key factors influencing the decision reach targeted levels. 

However, markets saw the latest comments of Fed chief as less hawkish than expected, mainly due to remarks that the central bank remains on policy easing path and that further borrowing cost increases are unlikely, despite high uncertainty of the current economic situation, which revived the optimism.