FOMC report finds progress in inflation fight

The Federal Reserve stated in its first biannual report of 2024 to Congress that the target range for the federal funds rate, currently set between 5.25% and 5.5%, has likely peaked within the current cycle of policy tightening initiated in early 2022. 

The report highlighted that the FOMC does not anticipate lowering the target range until its members possess increased confidence that inflation is steadily progressing towards the 2% mark.

Furthermore, the report observed a decline in stress within the banking system following last year’s bank failures. It emphasized that banks’ regulatory risk-based capital ratios remained strong and showed a broad increase, attributed to robust bank profits and reduced capital distributions. 

Nonetheless, the report cautioned that vulnerabilities persist in the financial sector, particularly noting significant losses in the fair value of long-dated bank assets.

“In terms of funding risks, liquidity remains ample, and deposits have stabilized recently,” the FOMC said. “The number of banks with large declines in fair value relative to their regulatory capital and heavy reliance on uninsured deposits has declined significantly since March 2023. Overall, banks’ reliance on short-term wholesale funding remained much lower than the typical range before the banking reforms of the previous decade.”