by Howard Schneider and Michael S. Derby
WASHINGTON (Reuters) – The U.S. Federal Reserve left key rates unchanged on Wednesday, the first since March 2022, but opened the door to two more hikes of a quarter-point each by the end of the year.
The federal funds rate target therefore remains set at 5.00%-5.25%, as expected by a large majority of experts polled by Reuters.
“Maintaining the target range at this meeting allows the Committee to assess the additional information and its implications for monetary policy,” the U.S. central bank said in the statement announcing the decisions of its monetary policy committee. , the FOMC (Federal Open Market Committee).
The next increases “will take into account the cumulative effect of past increases, the delayed effects of its policy on economic activity and inflation and economic and financial developments”, she added.
Its new economic projections, with a “hawkish” bias, show that the median of expectations of monetary officials sees the main key rate going to 5.50%-5.75% by the end of December.
The central bank’s announcements have resulted on Wall Street in a drop in the main indices: the Standard & Poor’s 500 – previously stable – is now down 0.59%.
The yield on two-year Treasuries fell into the green, gaining more than five basis points to 4.7495%, and the dollar reduced its losses against other major currencies.
“It seems the committee members have become even more hawkish since the last meeting and I think that took investors by surprise,” said Sam Stovall, at SFRA Research.
Nevertheless, the FOMC forecasts a rate cut of 100 basis points in 2024 as well as a marked improvement in price developments.
Fed projections suggest U.S. GDP this year will come in at 1%, down from 0.4% in the March forecast, and the unemployment rate at 4.1%, down from 4.5% previously . In May, unemployment was 3.7%.
As for inflation measured by the index favored by the Fed, that of personal consumption expenditure (PCE), it should drop from 4.7% currently to 3.9% by the end of December, against 3.6% anticipated in March.
(Howard Schneider, French version Laetitia Volga, edited by Jean-Stéphane Brosse and Tangi Salaün)
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