The Fed keeps rates at 23-year highs and suggests a single cut in 2024

Appreciates “modest progress” towards the 2% inflation target in recent months

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The Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) has decided to maintain interest rates in the target range of 5.25% to 5.5% for the seventh consecutive meeting. , at highest levels since January 2001, as reported this Wednesday by the institution, whose projections suggest a single drop in the price of money in the remainder of 2024.

In its statement, the entity has stressed that when considering any adjustment to the target range for the federal funds rate, the Committee will carefully evaluate the incoming data, the evolution of the outlook and the balance of risks.

“The Committee does not expect it to be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%,” he announced.

However, the US central bank has highlighted that inflation has decreased over the past year, but remains high, although it has noted that, in recent months, “there has been modest progress” towards the 2% inflation target.

On the other hand, the institution considers that recent indicators suggest that economic activity has continued to expand at a solid pace, while employment growth has remained strong and the unemployment rate has remained low.

In this way, the Committee considers that the risks to achieving its employment and inflation objectives have moved towards a better balance over the past year, although it has warned that the economic outlook is uncertain and remains very attentive to inflation risks.

The Fed’s decision, discounted by the market, comes hours after the Bureau of Labor Statistics of the US Department of Labor reported that the Consumer Price Index (CPI) slowed its year-on-year rise by one tenth in the month of May, reaching 3.3%.

Likewise, by excluding the impact of energy and food from the calculation, the core inflation rate moderated to 3.4% in May, compared to 3.6% year-on-year in the previous month.

A SINGLE RATE CUT IN 2024.

In addition to its decision on monetary policy, the US central bank also published this Wednesday its new macroeconomic projections and the evolution of interest rates.

Fed members are now mostly leaning toward fewer interest rate cuts than in March, when up to three cuts were projected, since the median rate projections now stand at 5.1%, compatible with a single cut in the price of money for the remainder of the year.

Specifically, four of the 19 members of the central bank are inclined to keep rates unchanged, while seven are betting on a single drop and eight would prefer two cuts in 2024.

Looking ahead to next year, however, the median forecast would point to up to four interest rate cuts, placing the federal rate at 4.1%, to reduce it to 3.1% a year later.

Regarding the macroeconomic picture projected by the members of the Federal Reserve, the median GDP growth forecast continues to anticipate an expansion of 2.1% this year and 2% in each of the next two years, in line with forecasts of March.

In addition, the US central bank maintains its forecast for this year of an unemployment rate of 4%, although it has raised that for 2025 to 4.2%, compared to the 4.1% anticipated in March, and up to 4.1% that of 2026, also one tenth more.

For its part, forecasts for the personal consumption expenditure index, the Fed’s favorite inflation indicator, suggest that it will reach 2.6% this year, two tenths more than in March, while in 2025 it will drop to 2.3 % and up to 2% by 2026.