Investing.com -- The Federal Reserve on Wednesday kept interest rate unchanged as signs of strong labor market and ongoing above-target inflation reined in the need to loosen monetary policy further following three consecutive rate cuts last year.
The Federal Open Market Committee, the FOMC, left its benchmark rate unchanged in a range of 4.25% to 4.50%.
Following a string of rate cuts last year, the Fed's decision at its January meeting to hit pause on rate cuts underscored the shift to a more cautious stance as worries about stalling inflation persist.
In its January statement, the Fed removed language that pointed toward "progress" on bringing inflation down toward its 2% goal that was included in the prior December statement.
At the press conference that followed the decision, Fed chairman Jerome said the Fed would need to see "real progress on inflation or at least some weakness in the labor market," for the Fed resume rate cuts.
Uncertainty over neutral rate, or r*, -- a breakeven rate that neither stimulus nor weighs on economic growth-- also played a role in the Fed's thinking on monetary policy.
The fed has lifted its expectations of r* several times over the past year, suggesting that its estimate of the rate needed to keep the economy in balance was too low, casting doubt on how restrictive its level of rates have been on the economy.
"Throughout the 4 editions of the SEP in 2024, the central tendency of the long-run dot has risen from 2.50% to 3.0%, which means that in this "r-r*" framework, policy rates were actually 50 bps less restrictive throughout the year than previously estimated," Jefferies said in a recent note.
Powell, however, pointed to the progress made toward the central bank's stable inflation and maximum employment goals as evidence that its monetary policy rates had been restrictive.
The Fed chief also said that while it was challenging to estimate the neutral rate, he believed the current level of rates as meaningful above the neutral rate.
At the current level of rates at 4.3%, "I would say we're meaningfully above it [neutral rate]," Powell said. "I have no illusion that that anyone knows precisely how much that is and but having cut 100 basis points means that it's appropriate that we not be in a hurry to make further adjustments."