The Federal Reserve has decided to keep interest rates unchanged at 5-5.25%, as widely anticipated by the markets. The decision was taken, explains the statement released after the end of the June meeting, to allow the Monetary Policy Committee to “assess the incoming information and its implications”. The decision, contrary to the expectations of several analysts, was taken unanimously.
Unchanged – compared to May – the diagnosis of the economy, and almost the entire text of the press release: “Recent indicators suggest that economic activity continues to grow at a modest pace”, while “the increase in employment has been robust and the unemployment rate remained low. Inflation, above all, “remained high”.
It’s just a break. “Almost all the participants (at the meeting of the monetary policy committee, ed.) think that further changes in rates will be necessary,” explained chairman Jerome Powell at a press conference. The new economic projections are consistent with these new expectations: for the end of the year the “dots”, the points indicating the forecasts of the individual governors, have a median of 5.625 – corresponding to rates of 5.50,5.75%, half a point above the current level – while in March they stopped at the current level (5.125%, equal to 5-5.25%).
In any case, the governors confirm that the rate cuts could begin in 2024, even if one-year inflation expectations remain high: rates could fall to 4.50-4.75% at the end of the year, corresponding to a cut of one percentage point. In March, however, they indicated lower rates for the same date, at 4.25%. At the end of 2025, rates will therefore be able to reach 3.25-3.50% (3-3.25% was indicated in March), while the level of 2.50% was confirmed for the long term.
The macroeconomic projections show inflation at 3.2% by the end of the year, at 2.5% in 2024 and at 2.1% in 2025 (they were, respectively, 3.1, 2.5 and 2.1 in March); while growth is indicated at 1% this year (up from 0.4% in the March projection), 1.1% next (up from 1.2%) and 1.8% in 2025 ( from 1.9%). The unemployment rate has also been revised downwards: 4.1%, 4.5% and 4.5% for the three years (from 4.5%, 4.6% and 4.6% indicated in March).