The Federal Reserve announced on Wednesday that it is holding interest rates steady at 5.25% to 5.5%, their highest level in two decades, as inflation continues to dog the US economy.

Though some had hoped the Fed would soon cut interest rates, which are at their highest level since 2007, the annual rate of inflation has stubbornly remained above 3%. The Fed’s target rate is 2%.

“The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed said in a statement that was largely unchanged from its statement after its previous meeting in March, when it also kept rates steady. “The committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

While the inflation rate hit 3% last June, the lowest rate since early 2021, inflation has continued to fluctuate between 2% and 4% over the last several months. In January, inflation fell to 3.1%, down from 4.1% in December, making investors hopeful about potential interest rate cuts later in the year. But the rate rose in February and March, reaching 3.5% in March.

Inflation peaked in June 2022, when the inflation rate hit 9.1%, a 40-year high. In April, after March’s inflation figures were released, Joe Biden noted that inflation had fallen 60% from its peak, “but we have more to do to lower costs for hard-working families”.

“Prices are still too high for housing and groceries, even as prices for key household items like milk and eggs are lower than a year ago,” the US president said.

In April, the Fed chair, Jerome Powell, confirmed that Fed officials were skeptical of changing rates given the recent inflation data. Earlier in the year, some economists believed the Fed would cut rates as much as three times before the end of the year. But March’s inflation data cemented doubts about any cuts in the foreseeable future.

“The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said at the time.

Powell echoed the Fed’s lack of confidence that inflation is cooling enough to cut interest rates at a press conference following the announcement.

“In recent months, inflation has shown a lack of further progress toward our 2% objective,” Powell said, noting that inflation this year has been higher than expected. “It is likely that gaining confidence will take longer than previously expected.”

Powell said the Fed is willing to maintain interest rates for “as long as appropriate”.

When taking questions, Powell noted that it is unlikely that the next interest rate move will be a rate hike, rather officials are thinking of how much longer they should maintain the current rate.

“Inflation is moving sideways,” Powell said, noting that the Fed is also keeping a close eye on the labor market, which has remained strong despite higher rates.

The Fed’s next Federal Open Market Committee will take place on 11 June and 12 June.