The US Federal Reserve Bank is leaving its key interest rate unchanged again. However, it signaled an end to the cycle and the first interest rate cuts for the coming year.
The US Federal Reserve (Fed) is leaving its key interest rate unchanged for the third time in a row. It remains in the range of 5.25 to 5.5 percent. The key monetary policy rate at which commercial banks can borrow central bank money has remained at this high level since July. The decision was expected.
Before the three meetings without a change in course, the monetary authorities had raised the key interest rate eleven times since March 2022 to the highest level since 2001 in order to curb high inflation. In November, annual inflation in the United States fell slightly to 3.1 percent. The Fed is aiming for a value of 2.0 percent.
Inflation forecasts lowered
The monetary authorities reduced their forecasts for inflation developments somewhat. The inflation rate, measured by the PCE price index, is expected to average 2.8 percent in 2023. In September, the central bank had forecast an annual rate of 3.3 percent. The Fed now expects an inflation rate of 2.4 percent for 2024. It had previously assumed 2.5 percent.
Core inflation, excluding volatile food and energy prices, is expected to be 3.2 percent this year and 2.4 percent next year.
Stronger growth expected
The US Federal Reserve also expects stronger economic growth. It increased its growth forecast for the world’s largest economy from 2.1 to 2.6 percent. The Fed is forecasting growth of 1.4 percent for the coming year. The latest indicators suggested that the economy had recently weakened compared to the strong third quarter. The increase in employment was also more moderate compared to the beginning of the year, but remains strong.
Interest rate cuts signaled next year
Federal Reserve Chairman Jerome Powell stated at the subsequent press conference that further interest rate increases were not off the table. The inflationary development must continue to be monitored closely. However, it is believed that interest rates are near their peak in this cycle. The Fed’s new interest rate projections also point to an end to the interest rate hike cycle. Members currently expect an average key interest rate of 4.6 percent by the end of next year. In September they had predicted an interest rate of 5.1 percent. That could indicate three rate cuts in the coming year.
The financial markets initially welcomed the signals that interest rate cuts were imminent in the foreseeable future. The US leading index Dow Jones rose to a record high of over 37,000 points.