The Fed’s first rate cut is expected in June by most market players (GETTY IMAGES NORTH AMERICA/AFP/Archives/ALEX WONG)
The American Federal Reserve (Fed) kept its rates unchanged on Wednesday, which remain at the highest level in more than twenty years, and it maintains the plan to reduce the cost of credit three times this year.
Overnight rates remain between 5.25% and 5.50%, the Fed announced in a press release, after a unanimous decision by the members of the Monetary Committee (FOMC).
Fed members, who significantly raised their projection for US GDP growth to +2.1% this year, instead of +1.4% previously, still expect three rate cuts of a quarter of percentage point in 2024.
For 2025, however, the Committee is less optimistic, forecasting only three other rate cuts to bring them down to 3.9%, instead of four previously projected.
The markets expected this status quo.
In its press release, identical to that of the previous meeting in January, the Federal Reserve judges the American economy “solid”, with “strong employment gains”, while the unemployment rate remains at 3.9%.
Jerome Powell, Chairman of the Fed, is due to hold a press conference following the publication of the press release.
He will be pressed with questions about the likely date of the first monetary easing. Investors are expecting it as early as the June meeting, according to CME Group futures product calculations.
In its new economic forecasts, the Fed anticipates, as it did three months ago in its latest projections, inflation at 2.4% in 2024, which will have difficulty falling below its current level, according to the PCE index.
The unemployment rate will increase less than feared, to 4% this year and 4.1% next year.
The Committee reiterates that it “does not expect it to be appropriate to lower the rate target until it is more confident in the sustainable path of inflation towards the 2% target.”
– Uncertain outlook –
To curb high inflation born from the massive monetary support provided after the global health and economic crisis caused by the Covid 19 epidemic, the American central bank raised its rates by 5 points from March 2022 to July 2023, an unprecedented rate, bringing them up to 5.25%-5.50%.
The Fed has thus managed to reduce inflation by two thirds since its peak at 9.1% in June 2022, without causing a recession so far, hoping to conclude with a “soft landing” by taming inflation without creating too much unemployment.
In January, it fell over one year, to 2.4% against 2.6%, but accelerated over one month, to 0.3% against 0.1%.
For Ryan Sweet, chief economist for Oxford Economics, the Fed boss “will avoid committing to a timetable for the first rate reduction, given that inflation has recently surprised on the rise.”
According to him, the central bank “will emphasize that it needs additional evidence that inflation is on a sustainable path towards its 2% target before cutting rates.”
Before launching monetary easing, Fed officials want to be sure that prices do not start to soar again.
During the last meeting in January, Fed President Jerome Powell took the markets by surprise by ruling out the hypothesis of a first decline in March.
At the beginning of March, before elected representatives of Congress, he warned: “the economic outlook is uncertain and continued progress towards our 2% inflation objective is not assured.” But he nevertheless added that “if the economy develops as expected, it will probably be appropriate to start easing monetary policy at some point this year.”
© 2024 AFP
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