On Wednesday, the U.S. Federal Reserve tightened its monetary policy for the ninth time by raising the benchmark interest rate by 0.25%, as expected by market participants. Backed by the recent banking crisis, the central bank cautiously hinted that the rate hike cycle is nearing its end.
The regulator has no solid plans for the future and will make further decisions based on incoming data. The FOMC intends to monitor how these measures impact the economy.
According to the statement, the FOMC may consider it appropriate to keep tightening its monetary policy to achieve the goal of reducing inflation to the target level of 2.0%.
This rhetoric contrasts with what it stated before: the rates must be raised as much as necessary to combat surging inflation.
On Wednesday, Fed Chairman Jerome Powell’s rhetoric was soft. Market participants perceived his speech as a hint that the rate hike cycle would soon end. Meanwhile, he emphasized that we still have to continue combating inflation.
Regarding the banking crisis, the chairman of the central bank admitted the possibility of tightening lending conditions. Also, he said that the Fed doesn’t plan to cut rates as a baseline scenario.
The concurrent forecasts showed that the target peak level remained unchanged, i.e., 5.1%. Consequently, we expect another round of monetary tightening.
According to the median forecast, the interest rate may be reduced by 0.8% in 2024 and by another 1.2% in 2025.
At the same time, the inflation forecast was raised from 3.1% to 3.3% for the end of the year, with the unemployment rate being reduced to 4.5% and economic growth rates being reduced to 0.4%.
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