The Federal Reserve held interest rates steady for the third straight meeting on Wednesday, highlighting a cautious stance as the U.S. economic outlook slowly improves.
In a statement released after its two-day policy meeting, the Fed said it would maintain the target range for the federal funds rate at 0.00-0.25 percent, citing that the current conditions “reflected a moderate improvement in labor market conditions.”
The move is unsurprising, as U.S. inflation has cooled in recent weeks from its peak levels earlier this year. The consumer price index (CPI) for all items rose 0.2% in April, according to the latest figures from the Bureau of Labor Statistics, and is up 3.6% from a year ago.
The recent drop in inflation is largely due to the decline in energy prices, as well as the modest appreciation of the U.S. dollar against other currencies. With the economy still recovering from the pandemic, the Fed is likely to keep rates low for some time.
The Fed’s decision to keep interest rates unchanged is also welcomed by financial markets, as it reflects the central bank’s intention to maintain a supportive monetary policy.
The statement offered little guidance on the outlook for future rate hikes. The central bank did acknowledge that “risks to the economic outlook remain” including “an extended period of low inflation, significant resource slack, and a slow return to more normal levels of employment and inflation.”
The decision to keep interest rates steady was unanimously agreed upon by the Federal Reserve’s open market committee. The Fed also said it expects to continue asset purchases at the current level for the foreseeable future, in an effort to provide additional support to the U.S. economy.
Overall, the Federal Reserve’s decision to not raise interest rates is a sign that it remains on the side of caution as the U.S. economy continues to recover from the pandemic. The central bank’s resolve to support the economy with a low-interest rate environment is likely to remain in place for the rest of 2021.