The US Federal Reserve on Wednesday voted to keep interest rates at a 23-year high for a fifth consecutive meeting, while signaling it still expects to make three cuts this year.
The news sent US markets higher, as traders cheered the central bank’s affirmation that three cuts are likely despite an uptick in monthly inflation. All three major indices on Wall Street closed at new records.
The Fed’s unanimous decision to hold its key lending rate between 5.25 percent and 5.50 percent lets policymakers “carefully assess incoming data, the evolving outlook and the balance of risks,” it said in a statement.
Photo: Bloomberg
“Inflation is still too high,” Fed Chair Jerome Powell told reporters after the rate decision was published. “Ongoing progress in bringing it down is not assured, and the path forward is uncertain.”
Despite the rise, Powell said this year’s inflation data “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road toward 2 percent.”
Alongside its rate decision, Fed policymakers also updated their economic forecasts, sharply upgrading the US growth outlook for this year to 2.1 percent from 1.4 percent in December last year.
Fed officials left the headline inflation forecast unchanged, but slightly raised the outlook for annual so-called “core” inflation — which excludes energy and food prices — to 2.6 percent.
Members of the rate-setting Federal Open Market Committee also left the median projection for interest rates at the end of next year at the midpoint between 4.50 and 4.75 percent.
This means they still expect 0.75 percentage points of cuts before the end of the year, which would likely translate into three cuts of 0.25 percentage points.
“The Fed delivered a straightforwardly dovish message: rate cuts are coming even if inflation or growth run stronger than expected,” Citigroup Inc economists wrote in a note to clients.
Futures traders currently assign a probability of more than 70 percent that the Fed would start cutting interest rates by the middle of June, with that number rising to more than 85 percent by the end of July, CME Group data showed.
Separately, the Swiss National Bank (SNB) yesterday cut interest rates for the first time since June 2022 — the first to do so among the major central banks, saying the battle against inflation was working.
The SNB eased its monetary policy and cut its rate by 0.25 percentage points to 1.5 percent, effective from today.
“For some months now, inflation has been back below 2 percent and thus in the range the SNB equates with price stability,” the central bank said in a statement, adding that inflation would likely remain within this range over the next few years.
“With its decision, the SNB is taking into account the reduced inflationary pressure as well as the appreciation of the Swiss franc in real terms over the past year,” it said. “The policy rate cut also supports economic activity. Today’s easing thus ensures that monetary conditions remain appropriate.”
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