- The US Federal Reserve’s key interest rate remains unchanged in the range of 5.25 to 5.5 percent.
- However, interest rate cuts are being promised for the coming year.
- According to the new economic forecast, core inflation will be 3.2 percent this year and fall to 2.4 percent next year.
For the third time in a row, the US Federal Reserve (Fed) is leaving its key interest rate unchanged at a high level. It remains in a range of 5.25 to 5.5 percent, as the Central Bank Council in Washington announced. It is the highest value in more than two decades.
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The Chairman of the Federal Reserve Board, Jerome Powell, at the media conference on the interest rate decision and economic development.
REUTERS/Kevin Lamarque
According to the Fed’s new economic forecast, an average key interest rate of 4.6 percent is expected for the coming year. That suggests about three rate cuts in 2024, totaling 0.75 percentage points.
As US Federal Reserve Chairman Jerome Powell said at a media conference, the possibility of interest rate cuts had been discussed. Because the fight against high inflation has not yet been won.
Fight against inflation
Since March 2022, the Fed has raised the key interest rate by more than five percentage points. The inflation was also triggered by rising energy prices after the Russian attack on Ukraine.
The central bank is aiming for price stability in the medium term with an inflation rate of 2 percent. It expects the inflation rate next year to be slightly lower than previously assumed. It should be 2.4 percent. The Fed expects an inflation rate of 2.8 percent for 2023. Core inflation – excluding food and energy prices – is expected to be 3.2 percent this year and 2.4 percent in 2024.
Low growth and risk of recession
The Fed is also predicting slightly lower economic growth for the coming year than expected three months ago. The gross domestic product (GDP) of the USA will therefore grow by 1.4 percent in 2024. According to Fed Chairman Powell, there is currently no reason to believe that the US economy is in recession, but there is a “certain probability” next year.
The Fed’s decisions are causing strong price movements on the financial markets. The dollar came under pressure. In return, the euro exchange rate rose by more than a cent to a daily high of 1.0897 US dollars. There were price gains on the New York stock market. The Dow Jones index rose to a new all-time high of 37,057.81 points. This was the highest level in its history for the first time since January 2022.