US Fed holds key rate of interest regular at above 5%

The US Federal Reserve on Wednesday left its key lending rate unchanged at between 5.25 and 5.50 %, according to a statement concluding a two-day meeting. 

Policymakers also forecast only one rate cut in 2024, down from a previous estimate of three. 

Although the Fed statement said economic activity was expanding at a “solid pace,” along with strong job growth and steady low unemployment, Fed chair Jerome Powell said policymakers “need to see more good data to bolster our confidence that
inflation is moving sustainably toward 2%.”

Rates to remain high for ‘as long as appropriate’ 

Powell told a press conference that the Fed was prepared to keep rates high “as long as appropriate.”

The annual consumer price index (CPI) was down in May, coming in at a cooler than expected 3.3%, 0.1% less than April according to US Labor Department statistics released ahead of the Fed announcement on Wednesday. 

Although, the Fed said that in recent months there has been “modest further progress” toward its 2% inflation target, “inflation has eased over the past year but remains elevated.” 

The benchmark rate has remained at above 5% since July 2023, after the Fed raised it 11 times to try to slow borrowing, spending and fight back inflation, which skyrocketed in 2022 to a 40 year high of over 9%. 

Since then, policymakers have faced the delicate task of keeping rates high enough to slow spending and cool down high inflation without sending the economy into a recession, which has been referred to as a “soft landing.”

Earlier in June, the European Central Bank cut interest rates in the eurozone for the first time since 2019 to 3.75%, citing weakening price pressure. 

Currently, Fed officials expect long-term year-on-year inflation to be around 2.6% at the end of 2024 rather than a previously projected 2.4%.

“What everyone agrees on,” Powell told the press conference, is that the Fed’s timetable for rate cuts is “going to be data-
dependent.”

Is Germany’s economic model doomed?

To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video

js/wmr (AP, AFP, Reuters)