The Federal Reserve has recently announced that it would be maintaining the status quo of interest rates due to the consistent failure to achieve its set target of 2 percent inflation. This decision is in line with its longstanding mission to secure maximum employment rates and maintain a steady inflation rate of 2 percent over an extended period.
The Federal Reserve members reiterated the need for substantial confidence in the inflation rate's steady progression towards the 2 percent mark before initiating any potential cuts to the interest rates. In addition, the Federal Reserve plans to continue decreasing its ownership of Treasury securities, agency debts, and agency mortgage-backed securities, albeit at a reduced speed.
More specifically, the Federal Reserve aims to slow down the rate of its securities' holdings reduction by lowering the cap on monthly redemption for Treasury securities from $60 billion to $25 billion. In contrast, it plans to uphold the current cap on agency debt and agency mortgage-backed securities' monthly redemption, set at $35 billion. Furthermore, the Federal Reserve plans to reinvest any principal payments that exceed this cap back into Treasury securities.
Looking forward, the next meeting of the Federal Reserve to discuss monetary policy is slated for June 11-12, with an anticipated decision to keep the rates unchanged again. Previously, the June meeting was considered as a potential opportunity for a rate cut. Still, following the recent data indicating consistent inflation, those expectations have been significantly tempered.
To illustrate this shift, data from CME Group's FedWatch Tool shows a stark decline in the probability of a rate cut during the June meeting. It has dipped from 56.8 percent a month ago to a current low of 7.3 percent.