Fed confirms rates at 5.25-5.50%: inflation still too high

US interest rates still on hold: there Federal Reserveas expected, decided to confirm the current monetary policy strategy, taking into account inflation that is still too high and growth that remains robust despite a restrictive policy.

What the FOMC decided

At the end of the two days of monetary policy, the Federal Open Market Committee decided to maintain the target rate range on Fed Funds between 5.25% and 5.50%.

The Fed will also continue to reduce Treasury securities in the portfoliogovernment agency debt and mortgage-backed securities, but as of June, the U.S. central bank it will slow down the pace of reduction of the securities in the portfolio, bringing the monthly repayment limit of Treasury securities from 60 to 25 billion of dollars and instead confirming the maximum monthly repayment threshold of mortgage-backed securities to 35 billion of dollars. The amounts exceeding this limit will be reinvested in Treasury securities.

Focus remains on the data

In making this decision, the FOMC has evaluated recent indicators, which suggest that economic activity continued to expand at a strong pace. There Job growth remained strong and the unemployment rate remained low.

Inflation has weakened in the last year – the Fed acknowledges – but remains high and in recent months further progress has been lacking towards the 2% inflation target set by the Committee.

Inflation target guides future choices

The Fed still says “strongly committed to bringing inflation back to its 2% target” and at the same time “try to achieve maximum employment”.

THE risks to achieve employment and inflation targets have moved towards a better balance in the last year, but the perspectives economical they are uncertain and the FOMC remains very alert to inflation risks.

When considering any adjustments to the target range for the federal funds rate – confirm – the incoming data will be carefully evaluated, the evolution of the outlook and the balance of risks. The FOMC believes it will not be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%.

When assessing the appropriate stance of monetary policy, i Bankers will continue to monitor the implications of incoming information for the economic prospects and they say ready to change the orientation appropriately of monetary policy if risks emerge that could prevent the objectives from being achieved. The assessments will take into account a wide range of information, including readings on labor market conditions, inflationary pressures and inflation expectations, as well as financial and international developments.

What analysts expect

The analysts of Intesa Sanpaolo they expected at least two rate cuts in 2024 at the end of 2023 (which corresponds to their current baseline scenario), but it is an overestimation is now possible the size of the moves which the US central bank is set to implement this year. “A necessary condition for the start of an expansionary cycle – according to experts – is a discontinuity in inflation data, not episodic but protracted for a few months, despite the presence of a resilient GDP and a still robust labor market”, otherwise the Fed could “decide just one cut, or no rate cut this year“, a hypothesis that now “cannot be ruled out”.

For experts Pictet AM “rate cuts are postponed, not cancelled”. “We expect the gradual slowdown in inflation and a modest slowdown in demand (at a still solid pace) – they underline – to lead the Fed to reduce rates twice this year, but the risks are tilted towards later and fewer cuts between this and next year.”