In his Semiannual Monetary Policy Report to Congress, Fed Chair Jerome Powell acknowledged that while “inflation has eased significantly over the past two years, it remains somewhat elevated relative to our 2 percent longer-run goal.” He emphasized that the Fed does “not need to be in a hurry” to initiate further rate cuts.
What’s the bottom line?
Adjustments to the Fed Funds Rate— the overnight rate banks use for interbank lending— are critical as they influence overall interest rates, even though they don’t directly correlate with mortgage or long-term rates.
The Fed started actively increasing the Fed Funds Rate in 2022 to address high post-pandemic inflation but began cutting rates last September in response to moderating inflation and a rise in unemployment. The decision to refrain from further cuts at the last meeting was influenced by slowing progress toward the 2% inflation target, as indicated by Core PCE metrics. Upcoming inflation data will be vital in determining the timeline for any additional rate adjustments this year.