The Federal Reserve kept US interest rates unchanged on Wednesday after a string of data indicated a "lack of further progress" in the central bank's fight to restore price stability.
After the Fed's decision, the target range was kept steady between 5.25 per cent and 5.50 per cent. The Central Bank of the UAE, which follows the Fed's lead, maintained its base rate at 5.40 per cent.
Fed chairman Jerome Powell again said it would take longer for the regulator to be in a position to begin cutting interest rates because of recent inflation readings.
The core Price Consumption Expenditures Index showed inflation rose 2.8 per cent in March, unchanged from February.
"In recent months, inflation has shown a lack of progress toward our 2 per cent objective," Mr Powell told reporters.
He said the Fed is not prepared to begin cutting interest rates until it gains "greater confidence" that inflation is moving towards its 2 per cent goal.
"So far this year, the data have not given us that greater confidence," Mr Powell said.
Mr Powell did not offer a time for rate cuts this year, saying only that "gaining confidence will take longer than expected".
He also did not say how many rate cuts he expects the Fed will announce this year, if at all.
Traders have been paring back their rate cut expectations this year. Markets now do not expect a quarter-rate cut until afer the 2024 election in November, CME data showed.
"This setback in obtaining confidence that inflation is on a sustainable path back to 2 per cent reinforces our view that any reduction to the fed funds rate remains at least a couple of meetings away," Wells Fargo economists Jay Bryson, Sarah House and Michael Pugliese wrote to investors.
With the Fed set to delay plans to cut interest rates, the European Central Bank could be the first among the advanced economies to withdraw on policy.
But the Fed chair's comments were not as hawkish as previously feared. Mr Powell said he still believes inflation will come down this year.
"That's my forecast. I think my confidence is lower than it was because of the data we've seen," he said.
He also ruled out a rate increase as the Fed's next move.
"I think it's unlikely that the next policy rate move will be a hike," Mr Powell said.
But some analysts still believe a rate increase is possible.
"The possibility of a rate hike this year has begun to emerge given the disappointment with recent inflation data," said Mahmoud Alkudsi, senior market analyst at ADSS.
"This was a once far-fetched idea, and it contradicts previous expectations of up to 150 basis points worth of rate cuts from the end of Q1."
Fed announces plans on balance sheet run-off
The Fed also announced plans to begin slowing the pace of its balance sheet run-off.
“Beginning in June, the committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion,” the committee said.
Mr Powell said slowing the run-off would help to reduce the possibility of stress in money markets.
He previously hinted at plans to begin reducing the size of its holdings of Treasury securities and mortgage-backed securities, a process otherwise known as quantitative tightening, or “QT”.
Quantitative tightening is the reverse of when the Fed bought massive amounts of bond holdings to support the economy during the Covid-19 pandemic.
The Fed's security holdings have declined by about $1.5 trillion to its current $7.5 trillion level.
