Fed to signal it has stomach to keep rates high for longer

livemint.com:

An ancient Chinese proverb that counsels “do nothing, and everything will be done" could sum up the Federal Reserve’s latest approach to interest-rate policy. Fed officials will hold their benchmark federal-funds rate steady at its highest level in more than two decades, around 5.3%, at their two-day policy meeting that begins Tuesday. Firmer-than-anticipated inflation in the first three months of the year has likely postponed rate cuts for the foreseeable future.

As a result, officials are likely to emphasize that they are prepared to hold rates steady, at a level most of them expect will provide meaningful restraint to economic activity, for longer than they previously anticipated. With no new economic projections at this meeting and minimal changes expected to the Fed’s policy statement, Fed Chair Jerome Powell’s press conference will be the main event on Wednesday. Here’s what to watch: Since officials’ meeting in March, the economy has continued to demonstrate strong momentum.

But inflation has disappointed after a string of cool readings in the second half of 2023 stirred optimism the central bank might be able to lower rates. In March, Powell held out the prospect that strong price pressures in January had been a bump on the road to lower inflation. Firm readings for February and March (even if not quite as hot as January) punctured that optimism.

They raise the prospect that inflation might settle out closer to 3%. The Fed targets 2% inflation over time. Powell is likely to repeat a message he delivered two weeks ago, when he said recent data had “clearly not given us greater confidence" that inflation would continue declining to 2% “and instead indicate that it’s likely to take longer than expected to achieve