The Blubber

The Federal Reserve left its benchmark interest rate unchanged on Wednesday and forecasted only one rate cut in 2024, as policymakers await more definitive signs that U.S. inflation is cooling.

The central bank maintained the federal funds rate—what banks charge each other for short-term loans—within a range of 5.25% to 5.5%. This rate has been at its highest level in 23 years since July 2023.

The Fed has been cautious about cutting rates due to persistent inflation, which, despite some signs of easing, remains above the central bank's 2% annual target. Earlier on Wednesday, the government reported that consumer prices in May rose 3.3% annually, a slight decrease from April's 3.4%.

In its statement, the Fed acknowledged "modest" progress in reducing inflation closer to its target but noted that the pace of price increases "remains elevated." Consumers, already weary from inflation, are likely to face higher borrowing costs throughout 2024. The Fed indicated only one rate cut this year, down from the three it had previously forecast.

The Fed's rate policies influence the costs of mortgages, auto loans, credit card rates, and other forms of consumer and business borrowing. The revised outlook for rate cuts suggests these borrowing costs will likely stay elevated for a longer period.

"The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop," said Bright MLS chief economist Lisa Sturtevant in an email. "Mortgage rates, which have remained higher for longer, will likely stay in the high sixes until later this year."

In recent months, Fed Chair Jerome Powell has emphasized the central bank's preference for keeping rates elevated until inflation approaches its 2% annual target. Cutting rates too soon, he warned, could trigger another round of price spikes.