Federal Reserve Maintains Steady Interest Rates Amid Economic Uncertainty

The Federal Reserve decided to keep interest rates unchanged on Wednesday, aligning with expectations. However, US central bank officials signaled their continued anticipation of lowering borrowing costs by 0.5% before 2024 concludes, considering the backdrop of decelerating economic expansion and an eventual moderation in inflation.

Assessing the impact of the previous administration’s tariff implementations, Federal Reserve authorities have marginally elevated their inflation projections for the current year. Their favored metric for gauging price increases is now predicted 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, they have slightly revised downward their economic growth forecast for the year, adjusting it from 2.1% to 1.7%, with a minor uptick in unemployment expected by the close of the year.

According to policymakers, the potential risks have grown, and there is widespread agreement that the outlook for the year remains unclear.

In a recent policy declaration that takes into account the initial weeks, the Federal Reserve acknowledged that “Uncertainty surrounding the economic outlook has become more pronounced.” The Fed has decided to maintain its policy rate within the 4.25%-4.50% band.

Following the release of the Fed’s policy statement and projections, US stocks experienced modest gains. The Dow Jones Industrial Average increased by 0.5%, while the Nasdaq Composite, which is heavily weighted in technology stocks, rose by 0.7%.

US interest rate futures indicated a reduction of slightly over half a percentage point this year, with investors estimating a 62.1% probability of the Federal Reserve resuming rate cuts during its June meeting, according to LSEG data. This is compared to a 57% chance prior to the announcement.