Investors were eagerly awaiting the US Federal Reserve's interest rate decision on Wednesday. The central bank, led by Chairman Jerome Powell, decided to keep borrowing costs unchanged for the seventh consecutive meeting. The decision to maintain the benchmark interest rate at 5.25-5.5% was in line with market expectations [e8a5a069] [86ce4883].
The US Federal Reserve has maintained its key overnight interest rate at the 23-year high mark since July 2023, and intends to hold steady until inflation moves consistently to target range. The US Federal Reserve announced its fourth interest rate decision for 2024 on Thursday, after a two-day Federal Open Market Committee (FOMC) meeting, where it unanimously voted to leave the key benchmark interest rates unchanged at 5.25 per cent - 5.50 per cent for the seventh straight meeting. Despite US inflation falling further to the target range in recent months, the Fed does not expect to reduce interest rates until it has 'gained greater confidence' that inflation is moving sustainably towards its two per cent level. The Fed policymakers also slightly raised the US core inflation forecast for this year compared to the forecast given in the previous policy meeting held in May, but stuck to the US gross domestic product (GDP) growth projections for 2024. The Fed's rate hikes have helped lower annual inflation from a peak of 9.1 per cent in June 2022 to 3.2 per cent. However, it has made borrowing costlier for businesses and households. The US Fed said in its statement that 'modest' progress had been made toward its long-term inflation target of two per cent, adding that they expect only one rate cut in 2024, down from the three projected in March. The Federal Reserve's so-called dot plot, which the US central bank uses to signal its outlook for the path of interest rates, shows the median year-end projection for the federal funds rate rose to 5.13 per cent. The US central bank also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only $25 billion in Treasury bonds to run off each month compared to the current $60 billion. Stocks hit fresh all-time highs even as the Fed did little to change Wall Street's bets that interest rates will drop at least twice in 2024 — even after the central bank's more conservative outlook. [e825783b]
Federal Reserve Chair Jerome Powell noted at the press conference that the central bank does not yet have the confidence to cut rates, even as inflation has eased from its peak levels. Powell also mentioned that the sentiment of everyday Americans on the economy is unclear, and that the recent strong jobs data might be slightly 'overstated.' The Fed does not currently have rate hikes in their base case, and Powell stated that the recent inflation data has not given the Federal Reserve greater confidence that it is moving closer to the 2% inflation goal. Inflation has eased substantially from its peak but remains too high, and the Fed is maintaining its restrictive stance on monetary policy. The Federal Reserve will likely keep interest rates elevated as it seeks sustainable progress toward its 2% inflation target. The central bank kept its key interest rate unchanged at a range of 5.25% to 5.5%, but adjusted its rate forecast to one reduction this year, down from three in March. The S&P 500 and Nasdaq Composite held on to their gains after the Fed's announcement, with the S&P 500 up 1% and the Nasdaq up nearly 1.8% [b522f08f].
Federal Reserve officials at the June policy meeting were divided on how long to keep interest rates elevated. They were awaiting additional evidence that inflation is cooling before considering lowering borrowing costs. The Fed has held its key policy rate in a target range of 5.25% to 5.5% since last July. The minutes showed that officials dialed back the number of interest-rate cuts they see this year to just one, with four policymakers projecting no cuts for 2024 and eight officials forecasting two. Some officials emphasized the need for patience, while others maintained a willingness to raise interest rates if inflation remains elevated. Chair Jerome Powell said recent data suggest inflation is getting back on a downward path, but more evidence is needed before lowering rates. The minutes also showed increasing caution about the labor market, with risks to achieving employment and inflation goals moving into better balance. The long-run neutral interest rate was forecasted to be 2.8% [0df9a4f2].
Federal Reserve officials voted unanimously to keep the benchmark federal funds rate in a range of 5.25% to 5.5% and signaled that they now expect to cut rates only once this year, compared to the three reductions forecast in March. They now see four cuts in 2025, more than the three previously outlined. The officials cited more favorable recent inflation readings and modest progress toward their inflation objective. The Fed's 'dot plot' showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts. The Federal Open Market Committee adjusted language in its post-meeting statement, noting there has been 'modest further progress toward the committee's 2% inflation objective' in recent months. Fed officials have repeatedly said interest rates are likely to stay elevated for longer after price pressures picked up in the first quarter. The European Central Bank and the Bank of Canada have already begun to lower borrowing costs. The Fed also published fresh forecasts for inflation, raising their projection for underlying inflation to 2.8% from 2.6% in March. They maintained their forecasts for economic growth and the unemployment rate at 2.1% and 4% respectively. The unemployment rate climbed to 4% in May. The Fed will continue to shrink its balance sheet at a slower pace, letting its holdings of Treasury securities fall by up to $25 billion a month. The cap for mortgage-backed securities was left unchanged at $35 billion. [797c25ec]
The US Federal Open Markets Committee (FOMC) has adopted a dovish tone in its last two monetary policy meetings, raising hopes for an early start to the easing cycle. However, in its latest meeting on June 12, the FOMC pulled back and kept policy rates on hold, showing indecision. The statement noted the 'solid' pace of expansion in the economy, 'modest progress' towards the 2% inflation target, and strong job gains. Despite signs of a slowing economy and below-forecast CPI, the much-awaited dot-plot forecast only one rate cut for 2024. US commentators argue that early rate cuts may be necessary for a soft landing. The Fed's indecision poses challenges for central banks worldwide, prompting them to decouple their rate actions from the US. The Reserve Bank of India Governor has explicitly stated that he is not in the game of 'Follow the Fed' and will calibrate India's monetary policy to local conditions. However, the RBI is aware of the trade-offs on capital flows and the exchange rate, given that the US remains the largest contributor of foreign portfolio flows to emerging markets like India. [4935fe99]
According to an analysis by SchiffGold, the US Federal Reserve's true motivation for keeping interest rates low is to finance the federal government's deficits. The Fed aims to achieve a 'soft landing' by cutting interest rates once inflation is under control, but history shows that the Fed has never successfully achieved this. The analysis argues that the Fed's strategy is not as controlled and measured as it claims to be, and that it will likely continue to cut rates regardless of inflation levels. The Fed is concerned about rising debt and interest costs, and it is willing to prioritize financing the government over achieving its inflation target [dc98d0b8].
The Federal Reserve officials will not lower interest rates for now, waiting for additional favorable data to confirm sustainable inflation movement towards 2 percent. The Fed has been above its targeted 2% annual inflation since 2021. The meeting minutes indicate that U.S. economic activity has expanded at a solid pace so far this year. If inflation persists at an elevated level or increases further, the target range for the federal funds rate might need to be raised. Federal Reserve Chairman Powell has emphasized the risks of cutting rates too soon and risking an inflation spike versus cutting rates late and risking positive economic growth. The Fed held key interest rates steady in June and said one interest rate cut is possible before the year's end. The Bank of Canada and European Central Bank had initiated rate-cutting cycles during that period. The ECB had lowered three key interest rates by 25 basis points. The Fed is poised to make adjustments as needed based on market conditions and changes in the economy. [d0c69ba4]
Officials at the Federal Reserve's last meeting dialed back the number of interest-rate cuts they see this year to just one. Four policymakers penciled in no cuts for 2024, while eight officials forecast two. The Fed has held its key policy rate in a target range of 5.25% to 5.5% since last July. The minutes showed increasing caution about the labor market as the risks to achieving the Fed’s employment and inflation goals have moved into better balance. The long-run neutral interest rate has risen to 2.8% [fc11534b].
As of July 2024, the Federal Reserve has kept interest rates steady at 5.25% - 5.50%. The decision was influenced by concerns about inflation and mixed signals from the labor market and GDP growth. The timing of the next rate hike is uncertain, with experts from Deutsche Bank and Goldman Sachs predicting a rate hike by the end of Q3 2024, while others anticipate a rate cut as early as the July 2024 meeting. The upcoming FOMC meeting on July 30-31, 2024, will be crucial in determining the course of interest rates for the year. Factors such as inflation, economic growth, and labor market trends will influence the Federal Reserve's decision-making process. It is recommended to stay tuned to trusted financial news sources for updates. [152006d1]