Key takeaways

  • During its May meeting, the Federal Reserve unanimously voted to hold policy rates steady for the sixth consecutive time, leaving the federal funds target rate unchanged at 5.25% to 5.5%.
  • Chair Jerome Powell acknowledged the hot first-quarter inflation data, stating that it will likely take longer than anticipated for the Fed to gain confidence that the economy is on a sustainable path toward 2% inflation. He reiterated his view that the Fed’s current stance is appropriately restrictive.
  • An important development in the presser came when Powell emphasized it’s unlikely that the next policy rate move will be a hike.
  • The Fed also confirmed that it would begin to slow the pace of reducing the size of its balance sheet starting in June.


John Veit

The Federal Reserve announced at its May 2024 Federal Open Market Committee (FOMC) meeting that it would maintain the overnight federal funds rate at the current range of 5.25% to 5.5%.1 This decision marks the sixth consecutive meeting at which policymakers have opted to hold rates steady and keeps the federal funds rate at the highest target range in over 23 years.2

The Fed remains committed to its dual goals of bringing inflation down to its 2% target to maintain price stability and achieving maximum employment. Economic growth and inflation are too high for the Fed to consider cutting rates. As the FOMC fights to restore price stability, it acknowledges that these high rates have taken a toll on consumers by eroding their purchasing power.

As expected, the FOMC reiterated that the economy continues to grow at a healthy pace, as recent economic data has shown strong job gains and a low unemployment rate. On a positive note, the FOMC highlighted that the risks and balance between jobs and inflation have improved.3

Chair Jerome Powell acknowledged the hot first-quarter inflation data, stating that it will likely take longer than anticipated for the Fed to gain confidence that the economy is on a sustainable path toward 2% inflation. He reiterated his view that the Fed’s current stance is appropriately restrictive.

Likewise, May’s FOMC statement noted that in recent months, there has been a lack of further progress toward the Fed’s inflation target.4 This led the committee to raise their longer-term inflation and growth expectations.

A softer run-off pace of security holdings

The Fed confirmed that starting in June, it would slow the rate at which it’s reducing the size of its balance sheet.

The Fed expects to lower the Treasury securities monthly redemption cap from $60 billion to $25 billion, a slower-than-expected change in pace. In addition, the Fed will maintain the agency debt and agency mortgage-backed securities monthly redemption cap at $35 billion. The Fed “will reinvest any principal payments in excess of this cap into Treasury securities.”5

This reduction in the balance sheet runoff is seen as a first step toward a more accommodating monetary policy, as the slowed runoff effectively means that the Fed is lowering the pace at which it is withdrawing liquidity from the system.

An uncertain path forward

As ongoing economic progress is not assured, Powell emphasized that the path forward is “uncertain.”6 May’s FOMC meeting left open the exact timing of potential rate cuts.

When asked about the extent of cuts, Powell reiterated that all decisions will depend on the upcoming data and be made on a meeting-to-meeting basis. Going forward, Powell emphasized the Fed will “carefully assess incoming data, the evolving outlook and the balance of risks.”7

We don’t expect the Fed to start cutting rates until later this year given stable economic growth and sticky inflation, and we’d need to see a meaningful reversal in growth to spur the Fed toward rate hikes. This buys the Fed more time to be patient, supporting our view that interest rates will be higher for longer.

Powell said he remains prepared to maintain the policy rate at current levels for longer if necessary, until the Fed has greater confidence that inflation has meaningfully lowered. When asked if we’ve reached peak rates, Powell responded that he does not know – the answer is data-dependent. Powell added that the Fed needs to see inflation move closer to 2% and the labor market cool down before considering rate cuts.8

Market reaction

U.S. equities were mixed and little changed in the afternoon following the Fed’s announcement on May 1, with the S&P 500 declining by 0.3% that day. Simultaneously, the Dow Jones Industrial Average rose 0.2% and the Nasdaq fell 0.3%.

Market observers and participants largely anticipated that the central bank would keep rates at current levels given March’s hotter-than-expected labor market data and stickier-than-expected inflation. Investor sentiment received a slight and short-lived boost after the FOMC meeting, as it offered little surprise in its decision to keep rates unchanged. Nevertheless, there is still the expectation that there could be rate cuts later this year.



Board of Governors of the Federal Reserve System, “Federal Reserve Issues FOMC Statement.” (May 2024)


Board of Governors of the Federal Reserve System, “Transcript of Chair Powell’s Press Conference Opening Statement” (May 2024).


Board of Governors of the Federal Reserve System, “Federal Reserve Issues FOMC Statement.” (May 2024)






Board of Governors of the Federal Reserve System. “Transcript of Chair Powell’s Press Conference Opening Statement” (May 2024).





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