The Federal Reserve held interest rates steady on Wednesday and postponed the start of cuts until likely December, forecasting a single quarter-point drop in the cost of credit this year, amid rising interest rates. that the agency’s authorities believe will be needed to keep inflation under control.
The lowering of the Federal Reserve’s rate cut prospects, compared to the three reductions of a quarter of a percentage point planned in March, occurs despite the fact that the central bank recognized in its new monetary policy statement a “modest advance “additional” towards its 2% inflation target, progress compared to the May 1 text.
The forecasts coincide with an increase to 2.8% of the estimated long-term, or “neutral”, interest rate from 2.6%, indicating that monetary policy makers have concluded that the economy needs more containment to end the battle against rising prices.
Recent progress has been slow, and Fed officials now forecast a slightly higher inflation rate at the end of the year, at 2.6%, up from 2.4% forecast in March.
Although rate cuts are now seen as likely to begin later and at a slower pace this year than investors had anticipated, the Fed’s policy rate is seen falling rapidly next year, with reductions of a full percentage point in both 2025 and 2026.
The statement and the new Summary of Economic Projections show a central bank struggling with how to respond to data that many interpret as pointing to weaker inflation – in fact, consumer prices did not rise at all in May on a monthly basis, according to data released on Wednesday – but also to solid growth and job creation.
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