Updates US Market — Despite indications that inflation may remain high for some time, the Federal Reserve maintained its prediction of three rate decreases this year and kept its key interest rate constant on Wednesday.
Additionally, Fed officials raised their projections for 2024 inflation and economic growth.
For the fifth consecutive meeting, the Fed’s benchmark short-term rate remains at a 23-year high of 5.25% to 5.5% as a result of the decision. The central bank has not raised the rate since July as consumer price hikes have significantly decreased, despite having hiked from near zero since March 2022 in an effort to combat excessive inflation.

With Wednesday’s action, Americans will continue to pay higher borrowing prices while the Fed fights to halt rapid price increases.
The Fed restated in a statement following a two-day meeting that it “does not anticipate it will be appropriate to cut the target range until it has gained greater confidence that inflation (now close to 3%),” which is the Fed’s target rate, is rising sustainably.

What will be the decline in interest rates?

The Federal Reserve maintained its expectation that it will cut the federal funds rate by three-quarters of a percentage point to a range of 4.5% to 4.75% by year’s end, based on their median estimate, despite the fact that inflation has eased more slowly so far this year. This is the equivalent of three quarter-point rate cuts, and the promise of reduced rates could support the stock market, which has set fresh records since the crash.

Fed Chair Jerome Powell admitted during a press conference that inflation spiked in early 2024 following a sharp decline in the previous year. However, he acknowledged that difficulties the government has in seasonally adjusting the statistics may have contributed to the January spike. He noted that although the February data was more concerning than the January one, it seemed to suggest less of a surge.
“The story is really essentially the same of inflation coming down gradually to 2% on a sometimes bumpy path,” Powell stated. “We won’t overreact to the numbers from the previous two months. We also won’t disregard them.”

Powell only reiterated that the Fed will probably start reducing rates “sometime this year,” without providing any further details. But he pointed out that in addition to continuing to reduce inflation, Fed policymakers would also consider lowering interest rates “if there’s a significant weakening in the labor market.”
Three rate reductions are still anticipated by futures markets this year, with the first one occurring in June.
A few analysts predict that the Fed will reduce rates even further this year in reaction to the slowing inflation and softening economy.

Paul Ashworth of Capital Economics stated in a letter to clients that “we continue to believe that below-potential GDP growth will help to drive core inflation much closer to the 2% target by year-end, persuading the Fed to cut rates by (a full percentage point), beginning in June.”
Officials from the Fed did down their prediction from four rate cuts in December to only three in 2025. Additionally, they increased their projection for the longer-run rate—which is meant to neither spur nor inhibit growth—from 2.5% to 2.6%, suggesting that they think the economy would be slightly stronger than expected in the upcoming years.

By newsparviews.com

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