2024-03-20 20:27:28
The American Federal Reserve (Fed) kept its rates unchanged on Wednesday, which remain at the highest level in more than twenty years. However, it retains the plan to reduce them three times this year.
Overnight rates remain between 5.25% and 5.50%, the Fed announced in a press release, following a unanimous decision by the members of the Monetary Committee (FOMC).
Fed members, who significantly raised their projection for US GDP growth to +2.1% this year, instead of +1.4% previously, still expect three rate cuts of a quarter of percentage point in 2024.
For 2025, however, the Committee is less optimistic, forecasting only three other rate cuts to bring them down to 3.9%, instead of four previously projected.
The markets expected this status quo. Wall Street, which was in a slight decline in the first part of the session, turned green when traders were reassured by the prospects of rate cuts intended to support the economy once inflation is brought under control. The Dow Jones gained 0.72% around 9:00 p.m. (Switzerland) and the Nasdaq gained almost 1%.
Jerome Powell, the president of the Fed, estimated during a press conference that inflation remained “still high” (at 3.2% according to the CPI index) but he reiterated that he was convinced that it would “come through.” over time” to the 2% objective.
A “solid” economy
In its press release, almost identical to that of the previous meeting in January, the Federal Reserve judges the American economy “solid”, with “strong employment gains”, while the unemployment rate remains at 3.9%. Strong growth in the job market is not in itself “a reason for concern regarding inflation”, assured Mr. Powell, indicating that wage growth had calmed.
In its new economic forecasts, the Fed anticipates, as it did three months ago in its latest projections, inflation at 2.4% in 2024, which will struggle to fall below its current level, according to the PCE index.
The unemployment rate will increase less than feared, to 4% this year and 4.1% next year.
Uncertain outlook
To curb high inflation born from the massive monetary support provided following the global health and economic crisis caused by the Covid 19 epidemic, the American central bank raised its rates by 5 points from March 2022 to July 2023, an unprecedented rate, bringing them up to 5.25%-5.50%.
The Fed has thus managed to reduce inflation by two thirds since its peak at 9.1% in June 2022, without causing a recession so far, hoping to conclude with a “soft landing” by taming inflation without creating too much unemployment.
Jerome Powell also indicated that the Fed would “very soon” slow down the reduction in the volume of its assets on its balance sheet until it only kept Treasury bills in these reserves and no longer also mortgage securities.
These securities sales which reduced the Fed’s portfolio by 1,500 billion dollars were another tool for tightening monetary policy since the powerful buyer of bonds that was the Fed will take a step back.
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