Powell informs at 7pm: Will the US Federal Reserve lower interest rates today?

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What happens to the key interest rate in America? The US Federal Reserve is likely to keep the interest rate steady at a high level this Wednesday. The Fed plans to announce its decision on the course of monetary policy at 19:00 Swiss time.

If the central bank does not change the interest rate once again, as analysts expect, the interest rate will remain in the range of 5.25 to 5.5 percent. This is the highest level in more than 20 years. Commercial banks can borrow from the central bank at this rate. This would be the fifth time in a row that the Fed has left interest rates unchanged at this level. At the same time, inflation in the United States is proving to be stubborn.

At the last meeting at the end of January, Fed Chairman Jerome Powell made clear that the current interest rate level “has probably peaked” and that rate cuts could be expected this year. It also reduced expectations that the Fed would cut interest rates at its meeting in March. First, they want to wait and see how inflation will develop.

unexpected increase

Consumer prices have increased much more slowly recently than they did a year ago. However, new figures from the US government show that price inflation in the US has unexpectedly accelerated slightly again. Consumer prices increased by 3.2 percent in February compared to the same month last year. Analysts on average expected it to be unchanged by 3.1 percent.

The US Federal Reserve aims for 2 percent price stability in the medium term. Keeping inflation under control is the classic task of central banks. The Fed has raised interest rates by more than five percentage points since March 2022 at a record pace in the fight against inflation, but recently stopped turning the interest rate screw and left interest rates at a high level.

Rapid inflation was triggered by the increase in energy prices after Russia’s attack on Ukraine and the consequences of the corona pandemic. The inflation rate in the United States was always above 9 percent in the summer of 2022; this was the highest level in nearly four decades.

How many interest rate cuts will there be in 2024?

The Fed will also publish its new forecasts on Wednesday. In December, Fed policymakers expected an average interest rate of 4.6 percent this year. This implied around three rate cuts in 2024. Now it will be exciting to see whether the Fed sticks to that forecast or expects smaller rate cuts this year, given persistent inflation. Some analysts expect the first rate cut to be made only after the meeting in June, while others expect it only at the meeting in late July.

It is important for the Fed to find the right balance. Because if interest rates are too high, there is a risk of recession. As expected, the Fed’s rapid rate hikes slowed growth in the world’s largest economy. But US economic data has positively surprised economists, and probably central bankers as well.

Good economic data reduces pressure on the Fed to cut interest rates quickly and significantly. The “New York Times” describes the central bank’s approach as “an unexpectedly painless process so far.” “It’s increasingly likely that (central bankers) will not cut interest rates at all this year,” Joseph Davis, an analyst at asset manager Vanguard, said, as quoted by the newspaper. (SDA)

Source :Blick