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Federal Reserve officials agreed to hold interest rates steady after 10 consecutive increases but signaled they were prepared to raise rates next month if the economy and inflation don’t cool more.

New economic projections, released Wednesday after their two-day policy meeting, strongly suggested officials were leaning toward slowing down their increases rather than stopping them altogether. Most of them penciled in two more rate increases this year, which would lift them to a 22-year high, and boosted their expectations for growth and inflation.

“They really needed to hammer home the message that this was not the end, which they did,” said Diane Swonk, chief economist at KPMG.

In its postmeeting statement, the Fed implied the decision to maintain the benchmark federal-funds rate in a range between 5% and 5.25% might be shortlived.

After holding the fed-funds rate near zero following the Covid-19 pandemic, the Fed had raised the rate at every meeting since March 2022 by a cumulative 5 percentage points, the most rapid series of increases since the 1980s. Officials slowed their increases this year, lifting the rate by a quarter percentage point at their past three meetings, most recently in May.

Advertisement- Scrollto Continue Wednesday’s decision not to raise rates “is a continuation of that process,” said Fed Chair Jerome Powell at a news conference. Given how much closer officials believe they are to their final destination “it’s common-sense to go a little slower.”

Stocks ended the day mixed. The S&P 500 rose 0.1%, while the Nasdaq Composite gained 0.4%. The blue-chip Dow Jones Industrial Average fell 0.7%, or 233 points, but most of that decline came from a 6.4% drop in UnitedHealth Group shares. The yield on the benchmark two-year Treasury note, which is particularly sensitive to the near-term outlook for interest rates, settled at 4.707%, according to Tradeweb, up from 4.694% Tuesday.

The Fed fights inflation by slowing the economy through raising rates, which causes tighter financial conditions such as higher borrowing costs, lower stock prices and a stronger dollar.

Officials had signaled growing disagreement in recent weeks over whether to keep raising rates.

Some officials became more doubtful in March of the need to lift rates more after the run on Silicon Valley Bank, which resulted in a total of three failures of midsize banks. They judged that the increase in funding costs for many other banks risked a credit crunch that would allow them to raise rates by less than otherwise.

“We don’t know the full extent of the consequences of the banking turmoil that we’ve seen,” Powell said Wednesday. “It would be early to see those.”

Other Fed officials have expressed more concern that inflation, hiring and consumer spending haven’t slowed more.

Powell and some colleagues had hinted at a potential compromise last month in which officials would forgo a rate rise in June while leaving open the prospect of an increase at their July 25-26 meeting.

“The bank failures in March are leading the Fed to hike less aggressively than they would have otherwise,” said Dean Maki, chief economist at hedge fund Point72 Asset Management. “It is defensible to slow down the pace of hiking at this point. But it does make communication more difficult.”

Because recent economic data on hiring and inflation has been stronger than anticipated by many forecasters, the logic behind raising rates this week and then holding steady in July would have been more straightforward and easier to explain, Maki said.

“What they’re doing, exactly, is less clear,” said Maki. “It’s not clear what the criteria are for when the next hike would be. It seems to come down to how they’re feeling at each meeting.” The projections Wednesday showed 12 of 18 officials think they will need to raise rates to between 5.5% and 5.75% this year—or higher—if the economy performs in line with their expectations. That would imply two additional quarter-point increases at any of four meetings later this year. Another four officials projected rates would need to go up by only a quarter point. Two anticipated that rates could stay at their current levels for the rest of the year.

In March, most officials projected no further increases after lifting the fed-funds rate to its current level.

Powell has kept the committee united since inflation surged two years ago, with only one dissent since the central bank began unwinding its pandemic-era stimulus policies at the end of 2021. Wednesday’s decision was also unanimous. Officials’ projections of penciling in two further increases this year, which was more aggressive than many interest-rate strategists had anticipated, offered a way to unite hawkish Fed officials that would have favored lifting rates this week with those who were more dovish, including Powell, who wanted to wait, said Swonk.

This was the ultimate way that Powell corralled the cats, yet again,” she said. “He clearly is more dovish than some of his colleagues right now, but by all-but guaranteeing a July rate hike, he was able to keep everyone on the same page.”

Powell offered few clues about what would lead the central bank to raise rates next month. Some analysts said Powell’s decision to forgo a rate rise Wednesday would prove to be a mistake.

“It will be harder next time to raise rates than they realize,” said Vincent Reinhart, a former senior Fed economist who is now chief economist at Dreyfus and Mellon. “The data probably will be a little bit more ambiguous. Their headline explanation is that they will know much more in six weeks, but the fact is they won’t know much more in six weeks. Chances are, they’ll be more confused in six weeks.”

The economy has shown only modest signs of cooling in recent months. The share of workers voluntarily leaving their jobs has returned closer to prepandemic levels, suggesting the tight labor market has eased a bit.

But steady hiring and wage gains could sustain elevated inflation. The Fed’s preferred inflation gauge, the personal-consumption expenditures price index, rose 4.4% in April from a year earlier, down from 5.4% in January. Core prices, which exclude volatile food and energy prices, have been more stubborn. On a year-over-year basis, they rose 4.7% in April, 4.6% in March, and 4.7% in February and January. The Fed targets 2% inflation over time.

The housing market—one of the sectors hardest hit initially by last year’s rate increases—has seen some improvement, illustrating how difficult it has been for the Fed to slow the economy and to balance supply and demand. The S&P 500 in recent days has edged up to new 2023 highs, powered by big tech stocks that slumped last year.

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