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Business News/ Economy / US Fed Policy: FOMC keeps key rates steady at 23-year high-mark in first verdict of 2024; no rate cuts seen in March

US Fed Policy: FOMC keeps key rates steady at 23-year high-mark in first verdict of 2024; no rate cuts seen in March

US Federal Reserve Policy: Rate-setting FOMC led by Fed Chair Powell voted to keep the key interest rates unchanged at 5.25-5.5 per cent for the fourth straight meeting.

FILE PHOTO: The Federal Reserve building in Washington, US. REUTERS/Joshua Roberts/File Photo (REUTERS)Premium
FILE PHOTO: The Federal Reserve building in Washington, US. REUTERS/Joshua Roberts/File Photo (REUTERS)

The US Federal Reserve announced its interest rate decision today after a two-day Federal Open Market Committee (FOMC) meeting, and unanimously voted to leave the benchmark interest rates unchanged at 5.25 per cent - 5.50 per cent for the fourth straight meeting, in line with Street estimates.

The US central bank has maintained its key overnight interest rate at the 23-year high mark since July, and said in its statement that it is unlikely to start cutting interest rates "until it has gained greater confidence that inflation is moving sustainably" toward two per cent. 

Follow US Fed Meet Live Updates: Powell-led FOMC keeps key rates unchanged at 5.25-5.50% for 4th straight meeting

The rate-setting panel also said the “risks to achieving its employment and inflation goals are moving into better balance."  The FOMC added that “In considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

With this week's policy stance, the Fed has signaled an end to the tightening cycle. The central bank also reiterated its intention to continue reducing its balance sheet by as much as $95 billion per month.

Fed's Powell knocks down prospect of a March rate cut

In a post-policy press conference, Federal Reserve Chair Jerome Powell pushed back strongly on Wednesday on the idea that the central bank could cut rates in the spring, as many market participants have been expecting.

"I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting" to lower rates, “but that’s to be seen," Powell said, adding that a March cut is not the base case for policy makers.

Powell cautioned that the Fed's struggle to lower inflation is not over, noting "we are not declaring victory, we think we still have a way to go." The Fed's interest rate target is "likely at its peak for this tightening cycle" and the Fed will likely cut rates “at some point this year," Powell said, while adding it will still take time to see if the data supports an easing in monetary policy.

The Fed's language in the current policy verdict was a blow to investors who have been expecting rate cuts to start in March. In its December meeting, the Fed signaled it expects as many as three quarter-percentage-point rate cuts in 2024, sparking optimism in financial markets that the central bank could cut rates as soon as March.

After today's verdict, market analysts said that the Fed gave an “extremely neutral, non-committal statement", while traders have now trimmed bets on March start to rate cuts, and now see a May start as about as likely.

Also Read: Will a hiring slowdown push the Fed to cut rates soon?

After raising the policy rate by 5.25 percentage points since March of 2022 in one of the swiftest Fed reactions to rising price pressures, the central bank has now kept the policy rate on hold since July as inflation edges closer to its target.

State of US economy

Fed officials did not issue new economic projections at their meeting this week. As of the December 12-13 meeting, policymakers envisioned cutting the policy rate by 75 basis points over the course of this year, but they have been reluctant to commit to a start date until there is more data showing inflation has continued its downward trajectory.

Across the board, the US economy performed better than policymakers expected last year. US inflation fell more steeply, with the Fed’s favored measure ending the year at 2.6 per cent. The economy expanded more quickly, with gross domestic product climbing 2.5 per cent.

The US jobs market was stronger, with the unemployment rate in December clocking in at 3.7 per cent, generally in line with where it was when Fed officials began raising rates in March 2022.

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Published: 01 Feb 2024, 12:42 AM IST
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