The US Federal Reserve is keeping its monetary policy stable and at the same time heading for several interest rate cuts this year. The monetary authorities around central bank chief Jerome Powell decided on Wednesday to leave the key interest rate in the range of 5.25 to 5.50 percent. In their updated outlook, they also signal that it is likely to fall this year – by 0.75 percentage points. This corresponds to three interest rate steps downwards. They therefore maintained their outlook from December. But at least nine of the 19 management members only expect two interest rate hikes or less.
Inflation in the USA has recently been on the rise again and is clouding the prospects of a rapid interest rate turnaround by the Federal Reserve. Consumer prices rose by 3.2 percent in February compared to the same month last year, after an inflation rate of 3.1 percent in January. The central bank is aiming for an inflation mark of two percent. “The basic prerequisite for an interest rate cut is that the Fed is convinced of a sustained decline in the inflation rate towards the two percent target. In February, inflation moved virtually sideways again,” said KfW chief economist Fritzi Köhler-Geib. The coming data should therefore increase confidence that price increases are really under control before the Fed can turn around interest rates.