Fed holds interest rates steady, indicates just one possible cut by year's end

June 12 (UPI) -- The Fed on Wednesday held key interest rates steady and said one interest rate cut is possible before year's end.

Federal Reserve Chairman Jerome Powell told reporters inflation has eased from a high of 7% to 2.7%, but is "still too high."

"My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people," Powell said.

"Our economy has made considerable progress toward both goals," he said, but the Fed is holding steady on the current interest rate and is selling more of its security holdings.

Powell said the Fed's "restrictive stance on monetary policy" is to "keep demand in line with supply and reduce inflationary pressures," which he said is working.

"Inflation has eased over the past year but remains elevated," the Federal Reserve said in a statement.

"In recent months, there has been modest further progress toward the committee's 2% inflation objective," the statement reads.

Powell also said economic activity has continued to "expand at a solid pace," while growth of consumer spending has slowed from "last year's robust pace but remains solid."

He said investment in equipment and intangibles has improved compared to its "anemic pace" in 2023, and supply conditions have improved over the past year.

"Committee participants generally expect GDP growth to slow from last year's pace with a median projection of 2.1% this year and 2.0% over the next two years," Powell said.

Inflation remains above the Fed's long-term goal of 2% with personal consumption expenditures rising 2.7% over the past year, excluding the "volatile food and energy categories," Powell said, adding the core rate rose 2.8% over the past year.

CPI inflation was unexpectedly flat for the first time since 2014, according to a Labor Department report Wednesday.

Wednesday's consumer price index report was 3.3% higher in May than a year earlier, and the core CPI rose 4.4%, Powell said.

The Fed signaled that just one interest rate cut is possible by year's end. That removed two of three interest rate cuts that had been indicated in March.

The Fed statement also said it needs greater confidence that inflation will head "sustainably toward" the goal of 2% annual inflation before it will be appropriate to cut rates.

Given current economic conditions, officials decided to maintain the target range of federal funds interest rates at 5 1/4 to 5 1/2%.

Powell said the Fed is poised to make adjustments as needed based on market conditions and the economy continue to change.

Attaining the ultimate goal of a 2% inflation rate would enable the Fed to lower its interest rate, he added.