Last Wednesday, the Federal Reserve (Fed) chose to keep interest rates unchanged, remaining in the range of 5,25% to 5,50%, a level not seen since 2001. In a decision in line with expectations of the market, the central bank of the United States also reaffirmed its projection of making three interest rate cuts throughout 2024.
Fed officials, at their most recent monetary policy meeting, signaled that any move to cut rates would depend on renewed confidence that inflation is on track to stabilize around the 2% target. The statement released after the meeting highlighted: “We do not expect it to be appropriate to reduce the target until we have gained greater confidence that inflation is moving sustainably towards 2%.”
The outlook for rate cuts reflects a moderate consensus among committee members, with nine of them anticipating three cuts this year, while five expect two and two predict just one. This distribution suggests a balanced caution given the need to combat inflation, which, although it has decreased in recent months, is still considered high.
The upward revision of the inflation outlook, from 2,4% to 2,6% this year, indicates an expectation that consumer prices may remain under pressure, despite a slightly more optimistic projection for 2023. The statement from Fed highlighted the importance of monitoring inflationary risks, emphasizing that “the Committee remains very attentive to the risks”.
In addition to interest rates and inflation, the Fed adjusted its forecasts for economic growth and the job market. The growth projection was raised to 2,1%, a positive sign of economic resilience. At the same time, the expectation for the unemployment rate was slightly reduced to 4%, reflecting a still robust job market and an economy that, despite the challenges, continues to expand.
The Fed's strategy of maintaining a gradual and cautious approach, balancing combating inflation with supporting economic growth, was reiterated in the decision to proceed with the planned reduction of its holdings of Treasury bonds and mortgage assets. This move is seen as part of an ongoing effort to normalize monetary policy in an economic environment that still presents uncertainty.
