The Federal Reserve has announced that it will keep interest rates unchanged for now. However, the central bank has taken a significant step towards potentially lowering rates in the coming months. In its policy statement, the Fed tempered inflation concerns with other risks to the economy and removed any reference to possible future rate hikes. The statement also indicated that a rate cut is not imminent, but could be considered if inflation continues to decrease.

While this news may disappoint investors who were hoping for rate cuts to start as early as March, the statement did acknowledge concerns about the employment side of the Fed’s mission. It also signaled a shift in the central bank’s bias, which had previously been towards raising rates and viewing the risks as tilted towards escalating prices.

The Fed’s prior statement, issued in December, had excluded any consideration of rate cuts. The new statement, however, marks the current policy rate as the peak of an aggressive monetary tightening cycle that began in 2022 when inflation was increasing. Since then, inflation has been running below the Fed’s target while economic growth and the job market have remained strong.

The Fed’s policy-setting Federal Open Market Committee (FOMC) stated that it will carefully assess incoming data, the evolving outlook, and the balance of risks when considering any adjustments to the target range for the federal funds rate. It did not provide any specific guidance on the timing or pace of future rate cuts.

Federal Reserve Chair Jerome Powell will hold a press conference to provide further details on the policy decision and economic outlook.

Overall, this announcement indicates that the Fed is taking a cautious approach to monetary policy, weighing the risks of inflation and employment. It suggests that the central bank is willing to lower rates if inflation continues to decrease, but wants to gain greater confidence in this trend before making any changes.