The decision of the American Federal Reserve regarding the reduction of interest rates was particularly awaited. The Fed is defying the predictions of certain analysts by maintaining them at their current level. A prudential choice that could change as inflation in the US economy slows to 2%.
No change to lower interest rates from the Fed
The interest rates charged by the Fed will neither be raised nor lowered. The last meeting of the financial institution recorded their maintenance at their current level of between 5.25% and 5.50%. This is the first time since 2001 that rates have remained at such a high level.
This is not a good new for investors who were banking on a reduction in these rates. However, the Fed now anticipates three rate cuts in 2024, confirming its previous forecasts. However, this perspective of the economy is conditioned.
Such an option will only be considered if inflation shows signs of stabilizing towards the 2% target. So far, inflation figures are higher than expected at the start of the year. But the Fed remains confident that inflation is normalizing toward that goal.
In any case, Jerome Powell, the president of the Fed, was very clear. Speaking on the decision to keep rates at their current level, he stressed the need for confidence in the economy before any changes. He did not specify any timetable for this.
June, new economic objective for a rate hike?
Despite this uncertainty, investors, especially crypto, are hoping for a rate cut by June, which has boosted optimism in the market. This hope seems linked to the Fed’s forecasts for the US economy in 2025.
It indicates a slight decrease in rate cuts from previous forecasts, as well as an increase in inflation projections to 2.6%. Meanwhile, the Fed’s forecast for 2024 is optimistic, with growth expected at 2.1% and the unemployment rate projected at 4%.
For the most part, the institution remains attentive to inflationary pressures while emphasizing its commitment to managing risks. Despite high inflation levels, the core personal consumption expenditure index is showing positive signs.
This illustrates the Fed’s nuanced approach to interpreting inflation data. While the institution adjusted its expectations for the long-term neutral rate to 2.6%, reflecting its assessment of economic conditions favorable to balanced growth. We see that ultimately, the Fed works to support growth in the economy while managing inflationary pressures and market risks.
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