Fed holds rates steady amid ongoing economic evaluation
13 June 2024 07:53
The Fed left interest rates in the USA unchanged at 5.25-5.50%, according to the communiqué. The Fed reiterated that additional tightening of monetary policy would depend on macroeconomic data. The Fed forecasts interest rates in the USA at 5.1% by the end of 2024 and 4.1% by the end of 2025.
The decision on interest rates was in line with market expectations and unanimous. In the current cycle of monetary policy tightening, the Fed has raised interest rates by a total of 525 basis points. Interest rates in the USA are the highest since 2007, and the pace of their increase is the highest since the early 1980s, when Paul Volcker was the Fed Chair.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent - it was stated in the communiqué after the meeting.
Inflation in the USA is falling
"Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low". The Fed presented new quarterly macroeconomic projections and a dot-plot chart showing the forecasted path of interest rates according to Fed members.
In June, the FOMC forecasted interest rates at 5.1% by the end of 2024, 4.1% by the end of 2025, and 3.1% by the end of 2026. In March, the Fed forecasted that interest rates in the USA would be 4.6% by the end of 2024, 3.9% by the end of 2025, and 3.1% by the end of 2026.
The median forecast for long-term interest rate expectations, also known as the neutral interest rate, was 2.8% in June compared to 2.6% in March.
After the Fed's decision, the dollar weakened against a basket of currencies, falling by 0.83% to 104.36 points, and the yield on 10-year Treasuries fell by 13 basis points to 4.27%.
