The US Federal Reserve has hinted that, should inflation continue to decline, it may begin lowering interest rates in 2019.
According to Federal Reserve forecasts, most officials anticipate lowering the central bank’s interest rate in 2024.
However, the central bank opted on Wednesday to maintain rates at a 22-year high of 5.25%–5.5% once more.
On indications that borrowing prices would be lowered next year, markets erupted, and the Dow Jones closed at a new all-time high.
The US’s three main indexes saw a 1.4% gain for the day’s close.
Since March 2022, the bank has increased rates significantly in an effort to slow price increases and calm the economy. Last year, prices increased at the quickest rate in decades.
“It’s far too soon to declare victory,” stated Jerome Powell, the chairman of the bank. “There is a lot of uncertainty and we’ve seen the economy move in surprising directions, so we’re just going to need to see further progress.”
However, the Fed is becoming more confident.
- The US unemployment rate hits its lowest point since July.
According to projections made public following the meeting, not a single member of the rate-setting committee thought they would need to increase rates again in 2024.
As opposed to this, most officials now anticipate cutting rates below 5% in the upcoming year – a significant change from a few months ago.
“This lends genuine support to the perspective that [the Fed] feels policy is yielding the desired effect for the economy and that inflation is under control,” stated Neil Birrell, chief investment officer of Premier Miton Investors, an asset management company with headquarters in London.
The Fed’s announcement was made in advance of several European central bank meetings. It is also anticipated that the Bank of England will hold interest rates once more at its meeting on Thursday.
Following the announcement, Mr. Powell stated at a press conference that he was encouraged by indications that inflation—the pace at which prices increase—had decreased.
However, Mr. Powell noted that although inflation remained above the bank’s desired rate of 2%, the bank was still vigilant about the risks associated with rising prices.
Despite their lack of expectation for more raises, Fed policymakers, according to Mr. Powell, did not want to rule out the possibility.
“If the economy does not evolve as projected, the path of policy will adjust,” he stated.
The United States’ inflation rate has already declined dramatically from its June 2022 peak of 9.1%.
According to Labour Department statistics issued this week, prices increased 3.1% last month when compared to the same period previous year.
Fed officials predict that inflation will continue to decline in the upcoming year but that it won’t reach the 2% target rate again until 2026.
Higher interest rates calm the economy and lessen the pressure on prices rising by making borrowing more expensive, which encourages saving and decreases borrowing for investments in businesses and homes.
The US economy is predicted by officials to develop by 1.4% in the upcoming year, a considerably slower rate than it did this year.
The Federal Reserve anticipates a rise in the jobless rate, which is at 3.7%.
