USA: Status quo for the Fed, which paves the way for two future rate hikes

by Howard Schneider and Michael S. Derby

WASHINGTON (Reuters) – The U.S. Federal Reserve left key interest rates unchanged on Wednesday, the first since March 2022, but opened the door to two more hikes of a quarter point each by the end of the year.

The federal funds rate target therefore remains set at 5.00%-5.25%, as expected by a large majority of experts polled by Reuters.

“By maintaining the target range at this meeting, the committee can assess the additional information and its implications for monetary policy,” the U.S. central bank said in the statement announcing the decisions of its monetary policy committee. FOMC (Federal Open Market Committee). .

The next hikes “will take into account the cumulative effect of previous hikes, the lagged effects of its policies on economic activity and inflation and economic and financial developments”, she added.

Its new economic projections, with a “hawkish” bias, show that the median of expectations from monetary officials sees the key policy rate going to 5.50%-5.75% by the end of December.

The central bank’s announcements have resulted in a fall in the main indices on Wall Street: the Standard & Poor’s 500 – previously stable – has now fallen 0.59%.

The yield on two-year Treasuries slipped into the green, rising more than five basis points to 4.7495%, and the dollar pared its losses against other major currencies.

“It seems the committee members have become even more hawkish since the last meeting, and I think that surprised investors,” said Sam Stovall, at SFRA Research.

Nevertheless, the FOMC predicts an interest rate cut of 100 basis points in 2024 as well as a significant improvement in price developments.

Fed forecasts suggest US GDP this year will come in at 1%, down from 0.4% in the March forecast, and the unemployment rate at 4.1%, down from 4.5% previously. In May, unemployment was 3.7 per cent.

As for inflation as measured by the index favored by the Fed, the personal consumption expenditures (PCE) index, it should fall from 4.7% currently to 3.9% by the end of December, against 3.6% expected in March.

(Howard Schneider, French version Laetitia Volga, edited by Jean-Stéphane Brosse and Tangi Salaün)

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