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Fed Holds Rates Steady Amid Cooling Inflation: Market Awaits Revised Projections

Shortly before the Federal Open Market Committee met on Wednesday to set interest rates, data were released showing that U.S. consumer prices remained unchanged in May. Core inflation rose less than expected, 0.2% month-over-month, while CPI rose 3.3% year-over-year and 3.4% excluding food and energy.

The Federal Reserve decided to keep interest rates unchanged, as widely expected, and released its Summary of Economic Projections, which showed a cautious attitude among monetary policymakers. In March, three rate cuts were expected before the end of 2024 and inflation of 2.6%, but this week the Fed anticipated only one rate hike and raised its inflation forecast to 2.8% for 2024. Fed Chairman Jerome Powell explained that the SEP was compiled prior to the release of lower inflation data, and few members updated their assumptions after revising it. The forecast for the long-term federal funds rate increased from 2.6% to 2.8%, indicating that the Fed sees a higher rate. While these adjustments appear aggressive, the expectation of four rate cuts in 2025 softened the market reaction, which still expects almost two cuts before the end of the year.



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