Federal Reserve stays put on rates

America's central bank stood pat on rates on Wednesday, but refrained from sounding a hawkish note that might tighten financial conditions further.

In its policy statement, the Federal Open Market Committee stated that there had been no additional progress towards its 2.0% inflation goal.

Inflation had "eased" over the past year. Yet it remained "elevated" and policymakers remained "highly attentive" to price risks, the FOMC added.

Nevertheless, over the preceding months, financial markets had shifted to discounting just one interest rate cut before the end of 2024, instead of the six that were priced in at the end of 2023.

Significantly too, in his press conference Fed chair Jerome Powell said that policy rates were at the level needed to bring inflation down to target over time.

Reducing inflation back to 2% would take some time but would be done, he added.

The monetary authority described recent economic growth as "solid", while adding that the economic outlook was "uncertain".

The target range for the Fed funds rate was kept at 5.25-5.50%.

However, the Fed said that starting from June it would slow the pace at which it was reducing its holdings of Treasury debt from $60bn per month to $25bn.

"The Fed says it will keep rates on hold, and has not opened the door to a rate hike," said Kathleen Brooks, research director at XTB.

"This is much of the same from Powell so far. He sounds worried about the economy and employment levels, at the same as remaining data dependent."

As of 2001 BST the yield on the benchmark two-year U.S. Treasury note was trading ten points lower to 4.946%, having hit an intraday low of 4.933%.

The U.S. dollar index was off by 0.46% at 105.73 and the S&P 500 was climbing 1.16% to 5,093.91.

"There have been some signs that the data is beginning to soften and the economic winds changing. This will likely mean rate cuts in the near term can remain on the table, however, there is no major red flag or alert that would cause the Fed to act swiftly," said Richard Carter, head of fixed income at Quilter Cheviot.

"Furthermore, with the looming presidential election in November, there is a possibility that any rate cuts this year are put in jeopardy."

For his part, in remarks to Bloomberg TV, Mohammed El-Erian expressed concern that the Fed would be too slow in reducing rates, in part out of an abundance of caution.