Fed signals single rate cut in 2024 amid slower inflation

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Despite inflation easing, the US Federal Reserve has announced that it will cut its key interest rate only once this year.
Despite inflation easing, the US Federal Reserve has announced that it will cut its key interest rate only once this year.

Despite inflation easing, the US Federal Reserve has announced that it will cut its key interest rate only once this year.

Revised Interest Rate Projections

The US Federal Reserve has indicated it will cut its key interest rate only once this year, despite a slowdown in inflation.

Initially, the central bank was anticipated to reduce borrowing costs three times by the end of 2024. However, on Wednesday, new forecasts from Fed officials outlined a single reduction in the interest rate outlook.

Current Interest Rate and Inflation Status

This revised outlook came after the Fed’s decision to maintain interest rates at their current 23-year high, even as inflation showed signs of easing.

Also read: US job market defies expectations with surprising surge in May

Inflation, measuring the rate of price increases, slowed to 3.3% in the year to May, down slightly from 3.4% in the 12 months to April. Despite this, inflation remains above the Fed’s 2% target, and between April and May, the inflation rate was unchanged. Consequently, US interest rates were held steady at 5.25%-5.5%.

Fed’s Cautious Approach

Fed Chair Jerome Powell emphasized that only “modest” progress had been made toward the inflation target. He stated that the central bank would need to see “good inflation readings” before considering any interest rate cuts.

This cautious stance reflects the Fed’s careful approach to ensuring inflation is firmly under control before reducing borrowing costs.

Expert Opinions and Analysis

Anastassia Fedyk, assistant professor of finance at Haas Business School, University of California Berkeley, commented on the Fed’s cautious approach.

Speaking to the BBC’s Today programme, she said, “We did get some good news in terms of better inflation numbers. But the Fed is still being pretty cautious, so they are signalling that in the future they are going to be doing one, most likely, rate drop and not a very large one at that.”

Some analysts, however, believe the central bank may still adjust its approach to interest rate cuts.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, described the reduction of interest rate cut forecasts from three to one this year as “unnecessarily aggressive.” Meanwhile, economists at Wells Fargo suggested that the decision between one or two rate reductions in 2024 remains a “close call.”

Diverging Views Among Fed Policymakers

The Fed’s policymakers were split on the number of expected interest rate cuts for this year. Among the 19 officials who provided their outlook, four anticipated no cuts, seven forecasted one reduction, and eight expected two cuts.

This diversity of opinions reflects the ongoing uncertainty and caution within the Federal Reserve as it navigates the balance between managing inflation and supporting economic growth.

Gary Monroe

Gary Monroe is a seasoned contributor to the Los Angeles Business Magazine, where he offers insightful analysis on local business trends and economic developments. With a focus on Los Angeles' dynamic commercial landscape, Gary's articles provide valuable perspectives for entrepreneurs and business professionals in the city.

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