The Federal Reserve describes inflation as "high," and updated quarterly economic projections show the price index for personal consumption expenditures, excluding food and energy, will rise at a rate of 2.6% by the end of the year , compared to the 2.4% expected in December.
The Federal Reserve held interest rates steady on Wednesday, but policymakers indicated they still expect declines totaling three-quarters of a percentage point by the end of 2024, even though more difficult progress toward the 2020 inflation target is expected. % of the US central bank.
In support of its objectives, the Committee decided to maintain the target range for the federal funds rate between 5.25% and 5.50%. In considering any adjustment to the target range for the federal funds rate, the Committee will carefully evaluate incoming data, evolving outlooks, and the balance of risks.
The Federal Reserve's new monetary policy statement describes inflation as "high," and updated quarterly economic projections show that the price index for personal consumption expenditures, excluding food and energy, will rise at a rate of 2 .6% at the end of the year, compared to the 2.4% expected in December.
Still, 10 of the 19 Fed officials still believe the policy rate will fall by at least three-quarters of a percentage point by the end of the year, a median view that was first set in December and that remains despite the recent inflation, higher than expected.
However, the mood was slightly more restrictive. In December, eleven officials predicted three cuts of a quarter of a percentage point this year, and the new vision for monetary policy was accompanied by an improvement in the economic outlook.
The expected annual growth now stands at 2.1%, compared to the 1.4% forecast in December, while the unemployment rate will end the year at 4%, less than the 4.1% forecast in December and without hardly any variation with respect to the February rate of 3.9%.
The forecast for a key measure, the official long-term interest rate, rose a tenth of a percentage point, from 2.5% to 2.6%, reflecting the view of some officials that the economy can withstand higher costs of the credit in the future.
EXPECTED DECISION
"It was expected that the Fed would not reduce its monetary policy rate, and the market had discounted it by 99%, however, [The new thing is that] Powell warns that 3 rate cuts should come this year," he details to AméricaEconomía Rodrigo Castillo, general director of BefX, brokerage firm and financial platform.
The analyst emphasized that we must be attentive to the labor market data, since these, depending on their weakening, would mark the speed of future interest rates.
"In relation to the central banks in Latin America, we would continue to see gradual reductions until we reach the objectives set by the central banks of each nation. A particular case is that of Chile, where yesterday the president of the Central Bank Rossana Costa declared that the inflation was not a problem, and that it would continue with the planned reduction," Castillo added.
Two years ago, the Fed began an aggressive cycle of tightening monetary policy in response to a spike in inflation that would end up reaching a 40-year high, but it has kept its official interest rate in the range of 5.25%- 5.50% since July.
The latest projections show that the median policymaker expects the benchmark overnight rate to fall by three-quarters of a percentage point in 2025, down from the percentage point projected in December as part of a slightly softer rate cut path. , and also three-quarters of a point in 2026, the same as had been anticipated before.
"Economic activity has expanded at a solid pace. Employment gains have remained strong and the unemployment rate has remained low," the Fed said in its statement approved unanimously after the end of a two-day meeting.
The statement also repeated that officials are still seeking "increased confidence" in a continued decline in inflation before beginning to cut rates, language adopted at the Jan. 30-31 Fed meeting and likely to remain in place. until just before the first rate reduction.
"The Committee does not expect it to be appropriate to reduce the target range until it is more confident that inflation is moving sustainably towards 2%. Of course, we are committed to both sides of our dual mandate and to an unexpected decline in the inflation market. employment that also guarantees a political response. We will continue to make our decisions at each meeting," Jerome Powell said this afternoon at the press conference that followed the rate decision.
