Looking to the future, the central bank maintains the expectation that interest rates should end this year at 4.6%. For now, the federal funds rate remains unchanged at between 5.25% and 5.5%.
The North American Federal Reserve (Fed) once again decided keep the federal funds rate unchanged between 5.25% and 5.5%. Looking to the future, the central bank maintains the expectation that interest rates should end this year at 4.6%.In the statement, the Federal Open Market Committee (FOMC) highlights that employment numbers “remained robust and the unemployment rate remains low”. Furthermore, the central bank highlights that, although inflation has decreased in the last year, it “remains high”. In addition to publishing the decision on the future of its monetary policy, the Fed updated its perspectives, known in English as “dot plot”. In this document, the central bank continues to point out (as in December) for the federal funds rate to end this year at 4.6% – which will imply interest rate cuts until the end of the year -, but is more pessimistic for the next two years, anticipating that the reference rate will fall to 3.9 % in 2025 and reach 3.1% in 2026.
In the previous dot plot, the central bank anticipated that the federal funds rate would fall to 3.6% next year and 2.9% in 2026.
However, despite these projections, the institution led by Jerome Powell maintains a cautious tone and, without mentioning the words “cut” or “reduction”, emphasizes that “when considering possible adjustments in the federal funds rate range, the Committee will carefully evaluate the data received, the evolution of the outlook and the balance of risks”.
From monetary policy to the economy, the Fed is more optimistic about the evolution of GDP, forecasting growth of 2.1% this year (above the 1.4% previously forecast), followed by increases of 2% in 2025 and 2026.
The PCE expenditure index – considered by analysts as the Fed’s preferred indicator for measuring inflation – is expected to close the year at 2.6%, above the 2.4% previously forecast.
In addition to speaking out about the future of the federal funds rate, the Fed also decided to leave a word on the balance sheetensuring that it will continue to reduce the debt contained in the central bank’s portfolio, not anticipating – at least for now and contrary to what was expected by analysts – a potential slowdown in the reduction of the balance sheet, an exercise known in English as “quantitative tightening ” (QT).
(News updated at 6:26 pm).
Tags: Fed interest rates unchanged predicts cuts year Monetary Policy
