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  Home > World Business


Fed Holds Interest Rates Steady But Signals Cuts Ahead


News Target | Natural News

 


 March 22nd, 2024  |  08:10 AM  |   309 views

UNITED STATES

 

The US central bank has left its key interest rate unchanged again, while it looks for more evidence that inflation is coming under control.

 

The decision kept the target range for the Federal Reserve's influential rate in the range of 5.25%-5.5%, the highest in more than two decades.

 

The Fed is debating whether higher borrowing costs have done enough to ease the pressures pushing up prices.

 

Officials said they still expected to cut rates by the end of the year.

 

But after raising borrowing costs aggressively in response to soaring prices in 2022, the bank is proceeding cautiously.

 

"We want to be careful and fortunately with the economy growing, the labour market strong and inflation coming down, we can" be, Fed chairman Jerome Powell said at a press conference after the Fed's meeting.

 

The Fed's move comes a day before the Bank of England will announce its own interest rate decision. It is also expected to hold UK interest rates where they are, at 5.25%, a 15-year high.

 

Higher interest rates in theory work to cool inflation by make borrowing more expensive, slowing the economy and easing the pressures pushing up prices.

 

But if left in place for too long, they risk triggering a harsh economic slowdown.

 

The moves in the US are being closely watched, as countries around the world face similar trade-offs.

 

For now, the world's largest economy has held up surprisingly well, despite the higher interest rates.

 

Forecasts released after the meeting showed that officials expect the economy to grow 2.1% this year, a significantly more rosy outlook than the 1.4% they projected in December.

 

The forecasts also showed officials expect inflation to fall to 2.4% by the end of the year, approaching the 2% rate the bank wants to see.

 

Mr Powell said officials were not overly concerned by some recent data, which has suggested that progress might be stalling.

 

The inflation rate was 3.2% in the US last month and 3.1% in January.

 

"We're not going to overreact to these two months of data, nor are we going to ignore them," he said.

 

The forecasts showed higher rates next year than officials had previously forecast. But overall the outlook suggested that the bank's confidence that it can rein in inflation without knocking the economy off course is growing.

 

Charles Mangin, head of foreign exchange at UK-based Crown Agents Bank, which specialises in emerging markets, said the growth in the US was "quite impressive".

 

But he warned that if strong growth leads the US to keep interest rates higher for longer than expected, it could lead to economic pain in other countries.

 

Emerging markets have seen foreign investment slow sharply, as investors shift money to more established economies like the US in response to higher rates.

 

Central banks in countries such as Egypt and Nigeria have already raised their own interest rates aggressively to try to compete, a path others may have to follow if they hope to bring investors back, he said.

 

But those moves - which sent rates to more than 20% in Egypt and Nigeria- will not come without local costs, he warned.

 

"The premium [to which] these guys will have to push their rates ... will put stress on the economies," he said. "If now we're in the scenario where the US are going to keep rates higher for longer, it's going to be a challenge for quite a few of the emerging markets countries."

 

 


 

Source:
courtesy of BBC NEWS

by Natalie Sherman

 

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