The Indian Express (Delhi Edition)
US Fed holds rates steady, sees just one cut in 2024 despite inflation progress
THE FEDERAL Reserve held interest rates steady at 5.25-5.50 per cent on Wednesday and pushed out the start of rate cuts to perhaps as late as December, with officials projecting only a single quarter-percentage-point reduction for the year amid rising estimates for what it will take to keep inflation in check.
The markdown in the outlook for rate cuts, from three quarter-percentage-point reductions seen in the Fed's March projections, was made despite the central bank's acknowledgement in its new policy statement of "modest further progress" towards its 2 per cent inflation target - an upgrade from its May 1 statement.
It coincided with an increase to 2.8 per cent in the estimated long-run, or "neutral," rate of interest, from 2.6 per cent, which indicates policymakers have concluded the economy needs more restraint in order to finish the battle against rising prices.
Recent progress has been slow, and Fed officials now project a slightly higher end-of-year inflation rate of 2.6 per cent versus the 2.4 per cent anticipated as of March. While rate cuts are now seen getting a likely later start and a slower pace this year than investors have anticipated, the Fed's policy rate is seen falling fast next year, with reductions of a full percentage point in both 2025 and 2026.
The statement and new Summary of Economic Projections show a central bank wrestling over how to respond to data that many read as pointing to slower inflation - consumer prices in fact did not rise at all in May on a month-overmonth basis, according to data released on Wednesday - but also to steady growth and job creation.