Federal Reserve Maintains Stable Interest Rates Amid Economic Outlook

WASHINGTON: The Federal Reserve opted to keep interest rates unchanged on Wednesday, aligning with widespread expectations. However, signals from the US central bank’s policymakers suggest a continued anticipation of reducing borrowing costs by approximately 0.5% before 2024 concludes. This outlook is shaped by a deceleration in economic expansion and an anticipated moderation in inflation.

Evaluating the impact of the tariffs implemented by the previous administration, Federal Reserve authorities have adjusted their inflation projections upwards for the current year. Their preferred metric for gauging price increases is now expected to reach 2.7% by year-end, a slight increase from the 2.5% forecast made in December. It’s worth noting that the Federal Reserve aims to maintain inflation at a target rate of 2%.

Concurrently, the growth forecast for the current year has been revised downward from 2.1% to 1.7%, with a marginal rise in unemployment anticipated by the close of the year.

Officials conveyed that potential risks have grown, expressing a broadly shared sentiment that the economic trajectory for the year ahead remains uncertain.

“Uncertainty surrounding the economic outlook has intensified,” the Federal Reserve stated in its updated policy announcement. This statement takes into consideration the initial weeks of the current administration and the preliminary execution of what administration officials have indicated will eventually be comprehensive tariffs on goods entering the country. The Federal Reserve has kept its key rate within the 4.25%-4.50% band.

Following the release of the Federal Reserve’s policy statement and projections, US equities experienced a slight uptick. The Dow Jones Industrial Average rose by 0.5%, while the technology-focused Nasdaq Composite increased by 0.7%.

US interest rate futures have factored in a reduction of just over 0.5% this year. According to LSEG estimates, traders are assigning a 62.1% probability to the Federal Reserve resuming rate cuts during its June meeting. This is compared to a 57% chance assessed before the announcement.