The Fed is keeping rates at 5.25-5.50% and hopes to gain more “confidence” before cutting them.
Washington (AFP) – The US Federal Reserve (Fed, the central bank) kept benchmark rates in the range of 5.25-5.50%, as expected, but signaled it needed more “confidence” before embarking on an expected round of cuts.
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The Federal Reserve’s Monetary Policy Committee (FOMC) left interest rates stable – unanimous among its members – for the fourth meeting in a row.
Managers noted that they would not start cutting rates without “greater confidence” that inflation is moving in a “sustainable” manner towards its long-term target of 2% a year, while acknowledging that there is a “better balance” of risks relating to inflation. and employment.
“We believe that our (monetary) policy rate is likely at its peak for this tightening cycle and that if the overall economy develops as expected, it will certainly be appropriate to begin easing (monetary) tightening in at some point this year.” Bank Chairman Jerome Powell told reporters at a press conference after the meeting.
“Almost all” Fed members favor cutting rates this year, he added. But the decision “will be linked” to “greater confidence that inflation is on a sustainable path to 2%” a year, he reiterated.
Markets were expecting the first cut in March, the Fed’s next policy meeting, after the Fed said late last year it expected three to four cuts in borrowing costs.
From March 2022 to July 2023, the Fed raised rates 11 times.
The increase was aimed at making credit more expensive, which slows consumption and investment, easing pressure on prices.
“The data (on GDP, inflation and employment – ed.) are incredibly good,” KPMG chief economist Diane Swank recalled in a blog earlier this week.
But “economic forecasts are uncertain,” the Fed understands. “And the FOMC remains attentive to inflation risks,” the organization emphasized this Wednesday after its two-day meeting.
Positive data
Twelve-month U.S. inflation remained stable at 2.6%, according to the PCE index released Friday by the Commerce Department. This data was the one the Fed watched the most.
But the central bank’s preferred index showed core inflation, which excludes volatile food and energy prices, continuing to decline at 2.9% in the 12 months to December.
Meanwhile, GDP growth in 2023 was higher than expected, even higher than 2022, at 2.5%.
According to December data, the unemployment rate remains at a 50-year low of 3.7%. Unemployment data for January will be available this Friday.
“The economy appears to be heading for a soft landing in the United States and around the world,” said ADP chief economist Nela Richardson, referring to a phrase that means inflation will fall without a recession.
The European Central Bank (ECB), which met last Thursday, decided to maintain its interest rates, dampening the hopes of those who were expecting signs of easing.
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