The United States Federal Reserve (Fed) maintained the interest rates in the range of 5.25% / 5.5% and foresees a single cut this year, in line with what was expected in recent weeks, although two less reductions than they thought in March.
The officials of the Fed This is how they defined it at the end of the meeting of monetary politics that lasted two days, arguing that they are going to support rates because of the inflation, which is approaching its 2% goal more slowly than they projected.
Meanwhile, by the end of 2025, those responsible for monetary policy at the US central bank foresee a official interest rate 4.1%, according to the median of their projections, which implies four additional cuts of 25 basis points next year.
It is worth remembering that in March, the last time the Fed published its quarterly projections, Most officials expected at least three 25 basis point rate cuts in 2024 and 2025, which would have put the official interest rate between 3.75% and 4% by the end of next year.
However, the inflation higher than expected earlier this year has forced Fed policymakers to recalibrate their forecasts, heralding a slower start to rate cuts.
Powell and the possibility that rates will not return to pre-pandemic levels
The president of the Fed, Jerome Powell highlighted the modest advance of inflation readings towards the target of price stabilitybut said he needs to see “more good data” regarding the level of inflation and admitted that “the world of ultra low rates “before the pandemic it might not come back.”
“We are doing monetary policy with the economy we have,” he said at the press conference after the decision of the Federal Open Market Committee to keep the cost of credit stable.
“So far this year, the data has not given us that much confidence. However, the most recent inflation readings have been more favorable than at the beginning of the year and there has been modest progress towards our inflation target,” he admitted. Powell. In that sense, he warned: “We will need to see more good data to reinforce our confidence that inflation is moving sustainably towards 2%.”
Fed officials’ projections
When evaluating the results of the meeting, the minutes show that 4 officials believe that the Fed should not cut rates this year, twice as much as in the first quarter. On the other hand, 7 officials believe that a single end-of-year rate cut would be appropriate, compared to 8 who believe it will be necessary 2 cuts.
In addition, monetary policy makers now forecast an inflation rate of 2.6% in the fourth quarter, based on the year-on-year variation of the price index of personal consumption expenditureswhose goal is 2%.
This figure is slightly higher than the 2.4% in March, according to projections, although they expect to keep borrowing costs higher for longer, as the PCE inflation registered 2.7% in each of the last two months.
Source: Ambito
