United States: The Fed has maintained interest rates, but hopes to cut them this year

The Federal Reserve (Fed, central bank) of the United States It kept its benchmark interest rate in a range of 5.25% to 5.50% on Wednesday.and reported that it maintains an expectation of making three cuts over the course of the year.

Keeping rates high allows members of the Monetary Policy Committee (FOMC) “carefully evaluate incoming data, evolving outlook and balance of risks”the organization said in a statement after a two-day meeting.

Fed Chair Jerome Powell reiterated in a press conference on Wednesday that inflation in the United States remains “too high.”

And while price increases have been contained and the labor market remains strong, efforts are underway to lower that inflation “they are not a guarantee of success”, he qualified cautiously.

Inflation has eased amid the Fed’s high-rate monetary policy for the world’s largest economy.

High rates make credit more expensive and therefore discourage consumption and investment, which enables it reduce pricing pressures.

Inflation in the United States reached 9.1% in June 2022 and the decline in the index within the framework of the restrictive monetary policy adopted by the central bank did not lead the economy to a recession or a significant increase in unemployment.

After these highs, the PCE inflation index, which is the one most followed by the Fed, moderated to 2.4% in the 12-month measurement in January, compared to 2.6% in the December data.

However, this year, inflation gained a little push and the market feared that the central bank would reduce its expectations for interest rate cuts, which ultimately did not happen.

Wall Street celebrated the Federal Reserve’s decision with record numbers. The three indices closed at all-time highs after a gain of 1.03% for the Dow Jones, which closed at 39,512.13 points; by 1.25% for the Nasdaq, which stood at 16,369.41 units, and by 0.89% for the S&P 500, which rose to 5,224.62.

FOMC members maintained their forecast for headline inflation but raised their forecast for core inflation, which excludes food and energy price volatility, to 2.6%.

Anyway, They expect no changes in their interest rate projection for the end of 2024and place them in a range between 4.50 and 4.75%.

That means they expect to cut rates by 0.75 percentage points in total for the rest of the year.

In December, the Fed’s idea of ​​making three cuts in 2024 had raised great expectations in the markets, which estimated that a first reduction could take place in March.

But in the following months, the central bank directors themselves took advantage of public appearances to warn him excessive movements Rapid rate increases could threaten inflation gains.

Now the markets expect cuts only starting from June, or even later.

Future asset broker They assign a 65% chance to a first cut in June. That rises to an 80% chance that a first decline will have already occurred by the end of July, according to CME Group data.

In a note to investors, Goldman Sachs economists lowered their expectations for reductions this year from four to three, “primarily due to the slightly higher path of inflation” in the early days of 2024.

The Federal Reserve also offered its forecast for the U.S. economy on Wednesday.

The agency revised its GDP growth forecast upwards to 2.1% for 2024.

The unemployment rate, meanwhile, will rise less than the Fed forecast, to 4% this year and 4.1% next year.