US Federal Reserve Holds Rates Steady, Sees Two Small Hikes By End Of Year
Two Fed officials see rates staying where they are, and four see a single additional quarter-percentage-point increase as likely appropriate
The US Federal Reserve on Wednesday kept interest rates unchanged, reported by Reuters. According to the report by the news agency, the Fed, however, signalled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year as the US central bank reacted to a stronger-than-expected economy and a slower decline in inflation.
The rate-setting Federal Open Market Committee said in a unanimous policy statement said that in an effort to balance risks to the economy with a still unresolved fight to control inflation, "holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy”. Further rate increases would "take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," it said.
The new projections, adding a hawkish tilt to Wednesday's interest rate decision, show policymakers at the median see the benchmark overnight interest rate rising from the current 5.00-5.25 per cent range to a 5.50-5.75 per cent range by the end of the year. Half of the 18 Fed officials pencilled in their "dot" at that level, with three seeing the policy rate moving even higher - including one official who sees it rising above 6 per cent.
Two Fed officials see rates staying where they are, and four see a single additional quarter-percentage-point increase as likely appropriate.
As reported by Reuters, policymakers, however, see 100 basis points of rate cuts in 2024, alongside fast-falling inflation. Combined, the rate outlook and the projections are likely to lead investors to expect a resumption of quarter-percentage-point rate increases beginning at the next policy meeting in July. The higher rate outlook coincides with an improved view of the economy and, consequently, slower progress in returning inflation to the central bank's 2 per cent target.
Fed officials at the median more than doubled their outlook for 2023 economic growth to 1 per cent, from 0.4 per cent in the March projections, and now see the unemployment rate rising only to 4.1 per cent by the end of the year compared to 4.5 per cent in the March outlook. The jobless rate as of May was 3.7 per cent.
The stronger-than-expected economy means inflation will fall more slowly, with the core Personal Consumption Expenditures Price Index dropping from the current 4.7 per cent to 3.9 per cent by year's end, compared to a 3.6 per cent year-end rate seen in the March policymaker projections.
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