For the 7th time in a row…US Fed keeps interest rates unchanged

The Federal Reserve announced on Wednesday that it would keep the interest rate unchanged at a range between 5.25% and 5.50% for the seventh time in a row, as the bank struggles to reduce inflation towards its 2% target.

The US Central Bank expected one cut in 2024.

The Fed said that the US economy continues to grow at a strong pace, the job market is also still strong, and the unemployment rate is still slow.

He continued: “Inflation has declined over the past year, but it is still high. There has been more modest progress towards the inflation target of 2%.”

Inflation in the United States of America fell to 3.3% in May, prompting investors to advance their expectations of lower interest rates.

The data, released hours before Federal Reserve officials were scheduled to outline their plans to cut interest rates this year, fell slightly short of economists’ expectations.

Treasury yields fell and stock futures rose after the data release, as investors bet on more interest rate cuts this year.

New forecasts released after this week’s two-day meeting indicated only slight optimism that inflation remains on track to return to the Fed’s 2% target, allowing for some policy easing later this year.

“Inflation declined over the past year but remains high,” the statement issued after the meeting said, repeating its tone in the last statement.

The only fundamental change in the new statement is the following: “In recent months, there has been modest additional progress towards the committee’s 2% inflation target.”

Reiterating its previous language, the Fed said there was a “lack of further progress” on inflation.

The committee, in its closely watched “dot chart” of individual participants’ price forecasts, indicated a more aggressive cutback path in 2025, with four cuts expected totaling a full percentage point, up from three.

For the period up to 2025, the committee now expects five total cuts equivalent to 1.25 percentage points, down from six in March.

If the forecast holds, it would leave the federal funds rate at 4.1% by the end of next year, 0.2 percentage points higher than the March forecast.

The important development is regarding long-term interest rate expectations, a level that neither promotes nor constrains growth. That rose to 2.8% from 2.6%, a sign that the longer-term higher narrative is gaining momentum among Fed officials.

In another indication of central bankers’ tendency to tighten monetary policy, the dots chart showed that four officials support no cuts this year, up from two previously.