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Key for the market: the Fed maintained rates and announced that it only projects a cut for 2024

Key for the market: the Fed maintained rates and announced that it only projects a cut for 2024
Key for the market: the Fed maintained rates and announced that it only projects a cut for 2024

The US Federal Reserve (Fed, central bank) It maintained, as expected, its rates at 5.25%-5.50% this Wednesday, and its managers aim to only one interest rate cut this year, two less than they thought in March, as inflation approaches their 2% target more slowly than they expected.

At the end of its two-day meeting, the Monetary Policy Committee (FOMC) also revised upwards its forecast for inflation for both 2024 and 2025, at 2.6% and 2.3% respectively, and reported “modest additional progress” towards its 2% inflation target. The economic growth forecasts remained stable at 2.1% for 2024 and 2.0% for 2025.

By the end of 2025, central bank monetary policymakers expect an official interest rate of 4.1%, according to the median of their projections, which implies four additional cuts of a quarter of a percentage point next year.

In March, the last time the Fed released its quarterly projections, most officials expected at least three 25 basis point rate cuts in 2024 and 2025. This would have placed the official interest rate between 3.75% and 4% at the end of next year.

Firmer US inflation changed rate cut projections

Higher-than-expected inflation earlier this year forced Fed policymakers to recalibrate your forecastsannouncing a slower start to rate cuts.

Since July, the Fed has maintained its target for overnight rates among banking entities in the current range, in an attempt to reduce high inflation. Four officials believe the Fed should not cut rates this year, according to new projections. Three months ago, only two thought like that.

Besides, Seven officials believe a single end-of-year rate cut would be appropriate, compared to eight who believe that two cuts will be necessary. Monetary policymakers now forecast an inflation rate of 2.6% in the fourth quarter, based on the year-on-year variation in the personal consumption expenditure price index, which targets 2%.

This figure is slightly higher than the 2.4% in March, according to projections, although they plan to keep borrowing costs higher for longer. PCE inflation registered 2.7% in each of the last two months.

The forecasts are not a consensus opinion, but rather a midpoint of the individual expectations of the seven Washington-based Fed governors and the 12 regional Federal Reserve bank presidents, intended to offer some guidance on thinking. of the officials.

PCE core inflation – which removes the cost of food and energy and which the Fed uses to measure underlying price pressures – It will be 2.8% in the fourth quarter of 2024, and 2.3% in the fourth quarter of 2025, according to the median projections. This contrasts with the March projection of 2.6% in 2024 and 2.2% in 2025.

Central bankers predict that the unemployment rate, currently at 4%, increase to 4.2% in 2025, above the 4.1% forecast in March. Meanwhile, they kept their growth forecasts for the US economy unchanged, at 2.1% this year and 2.0% in 2025.

Source: Ambito

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