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Highlights
- Fed holds rates steady at 5.25%-5.50%, projecting one cut in 2024.
- May CPI shows inflation easing to 3.3%, hinting at economic stabilization.
- Jerome Powell highlights robust job gains, stable low unemployment.
The U.S. Federal Reserve has opted to keep its benchmark federal funds rate unchanged at 5.25%-5.50%. Despite ongoing discussions about inflation and economic growth, this decision comes alongside revised projections suggesting only minimal rate cuts soon.
U.S. Fed Meeting Announcements: Key Outcomes and Statements
Federal Reserve Chairman Jerome Powell said that although the inflation has slightly declined, the current interest rates will remain unchanged in order to maintain the stability of the economy. This is consistent with the Feds cautious approach towards the target and the stability of inflation at 2%.
BREAKING : THE FEDERAL RESERVE HAS ONCE AGAIN DECIDED NOT TO RAISE OR CUT INTEREST RATES
THE FED WILL KEEP INTEREST RATES AT THE CURRENT LEVEL FOR NOW pic.twitter.com/UNr6TFWF65
— GURGAVIN (@gurgavin) June 12, 2024
In the meeting Powell noted that the efforts to cut down inflation have been quite “modest” unlike previous statements of standstill. In its updated projections, the Federal Reserve now expects one 25 basis point cut by the end of 2024, reversing its earlier projections of multiple cuts.
For the year 2025 there is also the expectation of further relaxation with predicted cuts of up to 100 basis points in view of the faster track towards the desired inflation rates.
Economic Indicators and Analyst Perspectives
The latest Consumer Price Index (CPI) report, released prior to the meeting, indicated a deceleration in inflation, contributing to the Fed’s revised outlook. May’s CPI showed an increase of only 3.3% year-over-year, down from April’s 3.4%, signalling a potential stabilization in price growth.
Economists such as the head of RSM, Joe Brusuelas, and James Knightley from ING have postulated that if this trend of low inflation is to be sustained then a rate cut could be a possibility in September. This view is based on the examination of consumer price indices and other economic data pointing towards a gradual move back towards the Fed’s inflation target.
Markets, after the Fed meeting responded positively to the news, with significant upticks in major indices. Nasdaq and S&P 500 went up as investors had positive expectations of the Fed’s measures on the monetary policy given the current economic conditions. However, the more moderate expectations for rate cuts have somewhat eased the initial excitement in sectors such as cryptocurrency, with only moderate gains in Bitcoin.
Jerome Powell Speech
Jerome Powell gave a detailed account of the state of the economy in his speech after the committee’s decision. Powell observed that the economy has improved a great deal, with many jobs created and unemployment rate remaining low, indicating the economy remains strong.
However, there are still risks that inflation will remain above the target, as the Fed continues to tread carefully.
Powell pointed out several areas of the economy that have been relatively strong and these include consumer consumption and business investment in equipment. The labor market is still healthy and is somewhat even stronger in the recent months than it was before the COVID-19 pandemic, which paints the picture of a balanced market with tight employment at 4.4%.
Powell’s speech was fairly optimistic while at the same time acknowledging that there are still risks that have to be managed, especially in terms of inflation.
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