Fed Holds Rates At 5.25-5.50%, Expects Tighter Policy Through 2024
The U.S. Federal Reserve decided to maintain interest rates at their current levels during its recent meeting, but it adopted a more hawkish stance, indicating the likelihood of an additional rate hike by the end of the year. The Fed also signaled a commitment to maintaining a tighter monetary policy through 2024, which is a departure from previous expectations.
Similar to their June assessment, the majority of Fed policymakers still anticipate that the central bank's benchmark overnight interest rate will reach its peak within a range of 5.50 per cent to 5.75 per cent this year, which is only a slight increase from the current range.
However, the updated quarterly projections from the Fed reveal a less aggressive approach to rate cuts in 2024 compared to what was anticipated at the June meeting. The new projections suggest that the federal funds rate will decrease to 5.1 per cent by the end of 2024 and further to 3.9 per cent by the end of 2025. These adjustments are in line with the central bank's efforts to curb inflation, which is expected to decrease to 3.3 per cent by the end of this year, 2.5 per cent next year and 2.2 per cent by the close of 2025.
The Federal Open Market Committee (FOMC) emphasised that inflation continues to remain elevated in its policy statement. This statement also incorporated projections that take into account stronger economic and job growth compared to previous forecasts, maintaining the goal of achieving a "soft landing" for the economy.
While financial markets largely anticipated the Fed's decision to keep rates unchanged, there was also an expectation among investors of significant rate cuts by the Fed in the coming year. However, this expectation is now uncertain, as the projections indicate that 10 out of 19 Fed officials foresee the policy rate remaining above 5 per cent throughout the next year.
