The Fed is keeping interest rates on hold and postponing a potential cut

The Fed is keeping interest rates on hold and postponing a potential cut

The US Federal Reserve yesterday chose to keep interest rates unchanged at the highest level since 2001 and delay – at least until June or even later – what would be the first official rate cut since the Fed began its anti-inflation campaign in March. 2022.

For now, after yesterday's meeting, the Federal Open Market Committee (FOMC) of the Federal Reserve decided that the official money rate will remain in the 5.25% and 5.50% range in which it has been fixed since June 2023, waiting for the inflation rate to rise. A resumption of the downward path that was interrupted in January and which left interest rates in March at 3.5%.

And all this without ruling out anything, not even an eventual tightening of interest rates, if inflation proves invincible: “The Committee will be prepared to adjust the monetary policy stance as appropriate if risks arise that could prevent the achievement of the Committee’s objectives,” the Fed warned in its statement. . He answered briefly: “The committee is strongly committed to returning inflation to its target of 2%.”

However, Federal Reserve Chairman Jerome Powell considered that “it is unlikely that the next movement in interest rates will be upward.” Powell said in a press conference that current monetary policy is “constrained and I hope it will be sufficient,” although he acknowledged that returning inflation to the 2% target “will take longer than expected.”

“Meeting to meeting”

One way or another, in order to leave no doubt about its decision, yesterday the Fed announced a measure to tighten its monetary policy: starting in June, the Committee will slow the rate of decline of its securities holdings by lowering the interest rate. The maximum monthly redemption of Treasury bonds ranges from $60 billion to $25 billion. With this announcement, it becomes difficult to expect the first cut in interest rates in the same month in which its monetary policy will be tightened, in June.

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Jerome Powell has already warned about this at an economic forum on April 16: “If the increase in inflation continues, we can maintain the current level of restrictions as long as necessary. At the same time, we have a large margin to ease monetary policy in the event that this happens.” . The labor market is weakening unexpectedly.” Looking ahead to future decisions, the Fed will remain attentive to the evolution of data, “from meeting to meeting,” as Powell put it. The Fed explained in its statement that “the committee's assessments will take into account a wide range of Information, including readings on labor market conditions, inflationary pressures, inflation expectations, and financial and international events.”

In June 2023, the US central bank decided to stop working after 11 consecutive hikes, sending money prices to levels not seen since January 2001, to combat inflation that was rising to levels not known for 40 years. The Federal Reserve temporarily halted high interest rates last June, awaiting conditions that would allow it to begin the expected path of cuts.

It seems that this did not arrive. High inflation (which reached 3.5% in March) makes the conditions that could lead to a cut remote, and more and more analysts see that the first cut will not arrive in June either.

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