US Fed expected to signal delay in interest rate cut
There is a possibility that Federal Reserve officials will not make any changes in interest rates in the sixth consecutive meeting. Apart from this, there is no indication of any plan to cut interest rates in the near future after the expected increase in inflation. The Federal Open Market Committee will set a target range for its benchmark rate at 5.25% to 5.5% at the conclusion of its two-day policy meeting on Wednesday. In July this rate reached its highest level for the first time in two decades.
An announcement on the rates decision and the pace of the balance-sheet reduction program is expected at 2pm on Wednesday. After 30 minutes, Fed Chairman Jerome Powell will hold a press conference in Washington.
Policymakers are not ready to cut interest rates until they are sure that inflation has fallen to 2 percent. They consider this rate appropriate for a healthy economy. Till now there was talk of rate cut thrice in 2024. But Powell may signal today that the plan is on hold and the future will depend on improving inflation conditions.
“The message may be that we are in a wait-and-see mode, that policy needs more time to take effect,” said Michael Gapen, head of U.S. economics at Bank of America Corp. The answer to stubborn inflation is to stay where you are for longer. ‘If we have to do this, we will stop until inflation returns to the target range.’
In his April 16 speech, Powell hinted at what he would say at a policy announcement and a press conference after the meeting. In this, the Fed Chairman said that rates could remain high for a long time and the central bank will keep the policy tight “as long as necessary”.
Bloomberg Economics says Powell will maintain a dovish stance at the April 30-May 1 meeting. Now they expect ‘less’ cuts this year. The strict living conditions may also indicate that they may rule out any cuts this year. They may also signal that rates could rise if inflation is not brought under control.
