The rate decision, which financial markets had already taken as a given, meant that the central bank’s “pause” in rate increases is now one year old — a record of sorts for a policy that was originally billed as tentative.
In its statement, the Federal Reserve acknowledged that consumer prices had climbed more slowly in recent months. Instead of describing inflation as “elevated,” as it did after its policy meeting in May, the central bank said: “Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated.”
But policy makers stopped well short of declaring victory. They repeated their concern that a tight labor market and a further reduction in available factory capacity could once again push inflation higher.
Analysts and investors have had little doubt that the central bank would continue its wait-and-see stance. The biggest question for many was how policy makers would change the nuances in their description of the economy, and especially how they would react to recent evidence of slowing inflation.
For the last several years, Fed governors including Ben S. Bernanke have set an unofficial goal of keeping the “core” rate of inflation, excluding volatile food and energy prices, at 1 to 2 percent a year.
The central bank’s favorite measure of core inflation, the Commerce Department’s price index for personal consumer expenditures, is just slightly above 2 percent and has eased from about 2.4 percent in March.
But because energy prices have climbed sharply in the last few months, the overall Consumer Price Index was up 2.7 percent in May, compared with a year before.
The sustained high energy prices, and rising prices in many categories of food, pose a potential risk to Fed policy if those high prices lead to higher inflation expectations among consumers.
Fed policy makers are in no rush to reduce interest rates. Economic growth, which slowed to a crawl in the first three months of this year, appears to have accelerated to an annual pace of about 3 percent.
Unemployment, which has hovered around 4.5 percent for the last several months, remains lower than the central bank had expected and is at levels that many economists equate with full employment.