The Federal Reserve, the US central bank, left the
interest rates unchanged in the range between 5.25% and 5.50%, at the highest since 2001. The cost of money has been at a standstill since July, after a long series of increases. The expected cut will not take place until inflation approaches 2% more decisively: it is now at 3.4%, after reaching a peak of 9.1% in June 2022, in the wake of high energy prices in the first months of the Russian invasion of Ukraine. “It will be appropriate at some point during the year” to reduce interest rates — added Fed President Jerome Powell during the press conference — but, if necessary, “we are prepared to leave the cost of money” at the levels current “for longer” than expected. The Fed will need to see “more favorable data” to be sure the time has come to lower rates. “We have confidence, but we want to have even more,” he said, that the cooling inflation data is sending “a real signal.” And again: “We are not declaring victory over inflation despite the encouraging progress” and “I don’t think a cut in March is likely.”
The board is divided on the timing of reducing interest rates, although at the two-day meeting no one has yet proposed a decrease. “We have a healthy internal debate with different points of view,” Powell said.
At the same time as the decision on the cost of money, the Fed announced that it will continue to “reduce its holdings of Treasury securities, agency debt and agency mortgage-backed securities.” The Fed leaders believe that “the risks linked to the achievement of the objectives in terms of employment and inflation are reaching a better balance”, but the economic prospects “are uncertain” and attention remains high “to the risks of inflation”, in a context of «economic activity growing at a rapid speed».
Wall Street, which probably expected a more attitude
open to monetary easing, it reacted with a sharp decline in the indices (Dow Jones -0.82%, Nasdaq -2.23%, S&P 500 -1.61%). The Bank of England decides on rates on Thursday, followed by the ECB on 7 March.
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