The Fed is keeping interest rates at 5.25% to 5.5%, the highest in two decades.

The decision reflects the caution of this central bank in the face of the current economic improvement and its impact on inflation. Inflation in the United States fell for the second month in a row in May, a sign that the acceleration in price increases earlier this year may be coming to an end.

If this trend continues, it could bring the Federal Reserve closer to lowering its benchmark interest rate. from peak at 23 years old.

Consumer prices rose 0.2% from April to May, the government reported on Wednesday. According to measurements a year ago, base prices increased by 3.4%, which is lower than the previous month by 3.6% year on year. This is the most moderate increase in three years, so the White House considers it a sign of improvement in the inflation situation.

As of March 2022, the Federal Reserve has kept interest rates at highest level in 23 years, after launching an aggressive campaign to control runaway inflation. The Fed’s goal is to reduce inflation to 2% on an annualized basis.

In its statement, the Federal Reserve explained that it was waiting for inflation to move more clearly toward that goal before considering any changes to interest rates. The economy has shown remarkable resilience despite high borrowing costs, prompting central bankers take a cautious position.

Analysts estimate the Fed will cut rates by a quarter percentage point to a range of 5% to 5.25%. by the end of the year, according to what emerged from the meeting in Washington. That amounts to a quarter-point decline, less than the three declines forecast in March. Most economists expected the first contraction to occur in September.

In mid-2022, annualized inflation reached alarming 9.1%, but fell significantly last year as food and labor shortages related to the coronavirus pandemic were addressed. But progress stalled earlier this year due in part to slowing wage growth, which has driven up prices for services, especially at restaurants.

The Fed also said it expects the U.S. economy will grow by 2.1% this year, similar to the previous estimate. In 2023, the economy grew by 3.1%. However, growth slowed to less than 2% annually in the first quarter of this year as low- and middle-income households largely depleted savings accumulated during the pandemic and accumulated massive credit card debt. Private credit in the US is valued at two trillion dollars.

Except, current unemployment rate 4% The Fed estimates it will remain unchanged by the end of 2024, in line with its March forecast. Monthly job growth is 248,000 jobs, on par with the 2023 average. Although hiring has slowed, employers have been reluctant to lay off workers in the wake of the ongoing pandemic. – associated with labor shortages.