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The US Fed keeps interest rates steady
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The US Federal Reserve kept interest rates steady Wednesday, a move that was expected but nevertheless closely watched by investors for hints about the central bank’s next moves.
At the start of the year, analysts projected the Fed would make six rate cuts this year, but inflation has remained stubbornly above the bank’s 2% target, raising the possibility that the Fed may not cut rates until the fall, if at all this year.
Fed Chair Jerome Powell on Wednesday said “gaining confidence” to cut interest rates “will take longer than thought.”
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” Powell said.
The Fed on Wednesday cited a “lack of further progress” in recent months toward achieving the inflation target.
SIGNALS
Investors watched for rate hike signs
The Fed’s monetary policy approach can be summed up by the Chinese proverb, “do nothing, and everything will be done,” The Wall Street Journal wrote. It’s been nine months without a shift in interest rates, the second-longest period on record without a change. And after so much speculation about when rates would be cut, investors were holding their breath over whether Fed Chair Jerome Powell would signal when a future rate hike could be on the table — a move sure to roil markets. Last month, US Treasury bond yields rose after New York Fed President John Williams hinted that a rate increase could be possible. At Semafor’s World Economy Summit last month, Williams said the higher rates “haven’t caused the economy to slow too much.”
The ‘global dimension’ of US rate decisions
The no-cuts trend played out globally since the start of the year, with predictions of near-term interest rate cuts also decreasing for other developing markets. “The Fed’s inflation problems have a global dimension and other central banks cannot ignore them,” the chief international economist at ING in New York told the Financial Times. US and European central banks have previously moved in lock step in cutting or hiking rates, but that could change this summer as the European Central Bank and the Bank of England have “no choice but to cut rates ahead of the Fed,” Bloomberg wrote, thanks to differing inflation scenarios: Price increases for services in the euro zone cooled in April, bolstering the case for a June rate cut.
Despite inflation, US jobs numbers strong
The US economy has been robust despite the stubborn inflation. Private employers added 192,000 jobs last month, according to new ADP data, a back-to-back gain that was the largest since mid-2023. But US consumer confidence has fallen to the lowest level since mid-2022, as Americans remain skeptical about the jobs market and the overall state of the economy. That poses a problem for President Joe Biden’s reelection efforts, with a focus group telling 538 that high prices make them less likely to vote for Biden. “The truth is,” the outlet wrote, “few could point to the exact economic problems they wanted to see resolved, or name the tactics they thought Biden or Trump could employ to help resolve them.”
