The US Federal Reserve (Fed) is leaving the key interest rate unchanged at a high level for the third time in a row and has promised interest rate cuts in the coming year. The key interest rate remains in the range of 5.25 to 5.5 percent, as the Central Bank Council announced on Wednesday in Washington. It is the highest value in more than two decades.
However, the Fed’s new projections suggest that interest rates will be cut again next year – and even more sharply than previously forecast. They signal interest rate cuts of a total of 0.75 percentage points in the coming year. Federal Reserve Chairman Jerome Powell has also opened the door to interest rate cuts with his statements. However, a further increase is not categorically ruled out.
Voices from economists at a glance:
Bernd Weidensteiner, analyst Commerzbank:
“According to its updated projections, the US Federal Reserve now expects three interest rate cuts next year instead of the previous two. At the same time, the economy is expected to have a soft landing. (…) So far we were assuming a first Interest rate cut shortly after the middle of the year, and this with a more negative growth forecast than the Fed. Today’s meeting increases the likelihood of an earlier rate cut.”
Thomas Gitzel, Chief Economist VP Bank:
“The simple message from today’s meeting of the Federal Open Market Committee is: Given that inflation rates have fallen noticeably, there is no longer a need for key interest rates above 5 percent. If the core inflation rate for personal consumption expenditure is 2.4 percent in 2024, as the Fed now expects ( September: 2.5 percent), the Fed would still be significantly restrictive with a key interest rate of 4.6 percent. But this shows that there is still a lot more interest rate cuts possible in the coming year. We feel confirmed in our assessment “The Fed will lower the target range for the Fed Funds Target Rate by 125 basis points next year.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics:
“The ‘any’ reference to a rate cut is new, and along with the statement that inflation has ‘eased’ and economic growth has ‘slowed’ – both formulations are also new in the central bank’s statement. The tendency to tighten the monetary policy is effectively abandoned, but without explicitly saying ‘we are done’. The Fed is waking up to the fact that the credibility of its threats of further rate hikes in the markets has been trending towards zero for some time.”
Elmar Völker, LBBW bond expert:
“The Fed is effectively saying goodbye to the prospect of further interest rate increases. (…) This gives the Fed more time to monitor further developments for some time in order to gain even more certainty that the easing on the inflation front is sustainable . We assume that this point could be reached in around six months. A first interest rate cut would therefore be in prospect around the middle of 2024. We believe that the excessive interest rate cut speculation by financial market participants, who believe that a turnaround in interest rates is likely up to three months earlier, is likely on the other hand, for exaggeration.”
WASHINGTON/FRANKFURT (dpa-AFX)