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The US Federal Reserve is poised to hold its benchmark interest rate steady for a third meeting in a row but emphasise that it does not believe its mission to quell inflation is yet over
The decision from the Federal Open Market Committee on Wednesday will extend a pause in monetary policy moves that has been in place since July, leaving the federal funds rate at a 22-year high of 5.25 to 5.5 per cent.
The decision, to be announced at 2pm Eastern Time, comes as the Fed tries to keep monetary policy tight enough to drive inflation back down to its 2 per cent target without damaging the economy and causing too many job losses. Chair Jay Powell will speak in a news conference after the announcement.
Officials have pledged to move “carefully” with policy decisions, keeping the possibility of further rate rises on the table if warranted by the data, while keeping under wraps their view of when or how deeply they might cut rates next year.
Some traders in futures markets had expected the central bank to begin lowering borrowing costs as early as March, although this week’s inflation data and a solid jobs report on Friday have prompted more bets that cuts will begin in May.
The central bank will on Wednesday provide some insights into its outlook when it releases officials’ individual forecasts for the policy rate, growth, unemployment and inflation.
In September, the last time the projections were updated, officials saw interest rates peaking between 5.5 and 5.75 per cent and half a percentage point worth of cuts in 2024 as growth slowed, unemployment ticked up marginally and inflation cooled.
To consider rate reductions, the Fed needs to be confident that inflation is trending back to 2 per cent in a sustainable way. If slower consumer price growth is accompanied by a sharp rise in unemployment, the rationale to cut would be clear.
The looming question is what happens if the economy holds up as inflation falls. Some officials such as John Williams, president of the New York Fed, and Christopher Waller, Fed governor, have suggested that loosening monetary policy could still be necessary so that interest rates, once adjusted for inflation, do not become too restrictive for households and businesses.
In a recent poll conducted by the Financial Times and University of Chicago Booth School of Business, most academic economists who responded to the survey expected the Fed to hold off on cuts until at least July 2024, and lower rates by half a percentage point or less by year end.
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