Fed Rate Holds; Powell Signals Possible Rate Cuts in Near Future
Fed rates hold at a 23-year high though Fed Chair Powell suggests cuts will follow in the next 3 quarters as the economic outlook remains positive.
The U.S. Federal Reserve has kept unchanged the benchmark interest rates for the 5th straight quarter at a 23-year high of 5.5%. With the rates at a high since March 2022, the Federal Open Market Committee (FOMC) aims to bring down post-lockdown inflation, the Fed Reserve has said in a press release.
Economic Expansion Continues
Economic expansion continues with strong job gains and low unemployment, though inflation remains somewhat high. The Federal Reserve aims for maximum employment and 2% inflation. Maintaining the federal funds rate, it remains vigilant on inflation risks, adjusting policy stance as needed.
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Additionally, Fed Chairman Jerome Powell suggested that Federal Reserve officials aim to cut interest rates thrice in 2024 despite persistently high inflation but project fewer cuts in 2025 with slightly raised inflation forecasts. They foresee stronger growth and inflation, necessitating higher rates for longer. The policy adjustments aim to balance economic growth with inflation control, expecting gradual cooling of inflation while maintaining a healthy job market. The Fed's benchmark rate is expected to rise above pre-pandemic levels, reflecting a shift towards tighter monetary policy. Economists anticipate the first rate cut in June to counterbalance inflation pressures, which have remained unexpectedly high according to recent reports.
Inflations Remains Around 3%
Fed officials, led by Chair Jerome Powell, weigh options on cutting rates amidst persistent inflation above 3%, particularly in services. While rate hikes impact goods, they have less effect on services spending. The Fed balances curbing inflation with avoiding economic weakness, with Powell suggesting confidence in inflation slowdown. Despite a healthy economy, concerns linger, including slower spending and rising unemployment. Globally, central banks navigate similar challenges, with some hinting at rate cuts while others, like Japan, raise rates amid inflation nearing targets.
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