The US Federal Reserve (Fed) has once again left the key interest rate unchanged. At the same time, central bankers promised several interest rate cuts this year.
The US Federal Reserve (Fed) is sticking to its high interest rate level. For the fifth time in a row, the monetary authorities decided to keep the key interest rate in the range of 5.25 to 5.50 percent. In their updated outlook, they also signaled that the key interest rate is likely to fall by a total of 0.75 percentage points over the course of the year. This suggests three interest rate steps downwards.
The monetary politicians around Fed Chairman Jerome Powell maintained their outlook from December. But at least nine of the 19 management members only expect two interest rate hikes or less.
Inflation in the USA has recently been on the rise again and is clouding the prospects of a rapid interest rate turnaround by the Federal Reserve. Consumer prices rose 3.2 percent in February, following an inflation rate of 3.1 percent in January. The central bank is aiming for an inflation rate of 2.0 percent.
Higher core inflation expected
The central bankers maintained their inflation forecast of 2.4 percent for this year. However, they increased the forecast for core inflation, i.e. excluding food and energy prices, to 2.6 percent after 2.4 percent in December. The Fed officials pay particular attention to this value in their analysis.
At the same time, the US central bankers significantly increased their growth forecast. The gross domestic product (GDP) of the world‘s largest economy is expected to grow by 2.1 percent. That would be 0.7 percentage points more than forecast in December.
First interest rate cut in June?
The new figures should reduce the pressure on the Fed to quickly and significantly reduce the key interest rate. The majority of players on the financial markets continue to expect a first interest rate hike in June. In his press conference following the decision, Fed Chairman Jerome Powell said that inflation data measured in January and February could be seasonally influenced and that this would not change the overall scenario. Despite the solid labor market, wage growth is gradually weakening.
“The basic prerequisite for an interest rate cut is that the Fed is convinced of a sustained decline in the inflation rate towards the two percent target,” commented KfW chief economist Fritzi Köhler-Geib. The coming data should therefore increase confidence that price increases are really under control before the Fed can turn around interest rates.
Antje Passenheim, ARD New York, tagesschau, March 21, 2024 6:08 a.m