The US Federal Reserve is pausing after a rapid series of rate hikes. The Fed expects inflation to be slightly lower this year than assumed three months ago – economic growth is likely to be higher.
The gross domestic product (GDP) of the world’s largest economy should therefore grow by one percent, the Fed announced in Washington on Wednesday. That would be 0.6 percentage point more than predicted in March. For next year, the Fed forecasts growth of 1.1 percent in the US.
Meanwhile, inflation is expected to average 3.2 percent in 2023, down 0.1 percentage points from the previous forecast in March, central bank data showed on Wednesday.
However, core inflation, ie excluding food and energy prices, is expected to be slightly higher this year at 3.9 percent (expected March: 3.6 percent). The Fed is committed to the goals of price stability and full employment, targeting an inflation rate of 2 percent.
Base rate remains unchanged
The Fed was silent for the first time on Wednesday after ten rate hikes. The main monetary policy rate remained within the range of 5.0 to 5.25 percent. According to corresponding signals from central bank management, this was expected in the financial markets.
At the same time, however, the currency watchdogs around Fed boss Jerome Powell signaled that the interest rate peak may not have been reached yet: at the end of the year they aim for an average interest rate of 5.6 percent – in March they had targeted 5.1 percent. This would mean that the central bank could take two more steps up this year, each by a quarter of a percentage point. The Fed now wants to use the lull to look at more data before deciding on further tightening. All eyes are now on the next meeting in July.
Fed Director Philip Jefferson recently emphasized that if the central bank pauses on the interest rate path, it should not be taken as a signal that the top has already been reached. The Fed was therefore able to continue the aggressive tightening course it embarked on in March 2022, despite the fact that inflation has recently fallen to 4.0 percent. The monetary watchdogs aim for an inflation rate of 2.0 percent and are still a long way from reaching their goal.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
