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US Forecasts Prolonged High Rates Amid Ongoing Inflation Battle

US Forecasts Prolonged High Rates Amid Ongoing Inflation Battle
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US Forecasts Prolonged High Rates Amid Ongoing Inflation Battle
Getty Images Getty Images

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US Forecasts Prolonged High Rates Amid Ongoing Inflation Battle

The Federal Reserve, the US central bank, has again decided to maintain its benchmark interest rates, citing a persistent lack of progress in curbing inflation. This decision holds the key rate at its current range of 5.25% to 5.5%, the highest level it has been at in over two decades since July of the previous year. The Fed’s strategy in keeping borrowing costs elevated is aimed at tempering economic growth and alleviating the upward pressure on prices.

However, despite the Fed’s efforts, inflation in the US has proven to be more enduring than initially anticipated, prompting speculation about the central bank’s future actions. Analysts, who previously projected rate cuts earlier in the year, have now revised their forecasts, with some even considering the possibility of rate hikes.

Following the announcement, Fed chairman Jerome Powell addressed questions about potential rate adjustments, stating that a rate increase was unlikely at present. Powell emphasized the importance of data in guiding monetary policy decisions, highlighting the need for greater confidence in the easing of inflationary pressures before considering rate cuts.

In the US, consumer prices rose by 3.5% over the 12 months leading up to March, surpassing the Fed’s 2% target and exhibiting a recent upward trend. The Fed’s statement acknowledged the ongoing challenges in bringing inflation back to its desired level, signaling a cautious approach to monetary policy.

Brian Coulton, chief economist at Fitch Ratings, noted the Fed’s acknowledgment of the deteriorating inflation dynamics and suggested that patience would be paramount moving forward, with the possibility of fewer or no rate cuts in the coming year.

The Fed’s decision to maintain rates unchanged since July of the previous year contrasts with its aggressive rate hikes from near-zero levels in March 2022. Higher interest rates impact consumers through increased costs of mortgages, car loans, and other forms of borrowing.

The Fed’s actions are closely monitored globally, especially by central banks like the Bank of England, which have also implemented prolonged periods of heightened rates. Powell remarked that while other countries may consider rate cuts more swiftly due to economic concerns, the US can afford to exercise patience given its robust growth prospects.

Additionally, the Fed outlined its plans to slow the pace of reducing its holdings of US Treasuries, which were accumulated as part of stimulus measures during the pandemic. Powell clarified that this adjustment aims to prevent disruptions in financial markets and is not intended to influence the ongoing fight against inflation.


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