Federal Reserve officials signalled that they still expect to cut their key interest rate three times in 2024 despite signs that inflation stayed surprisingly high at the start of the year. Yet they foresee fewer rate cuts in 2025, and they slightly raised their inflation forecasts.After ending their latest meeting, the officials kept their benchmark rate unchanged for a fifth straight time.
“The risks are really two-sided here,” Powell said. “We’re in a situation where if we ease too much or too soon, we could see inflation come back. And if we ease too late, we could see unnecessary harm to employment.”Rate cuts would, over time, lead to lower costs for home and auto loans, credit card borrowing and business loans. They might, which is facing widespread public unhappiness over higher prices and could benefit from an economic jolt stemming from lower borrowing rates.
“The sum total of this ‘no news is good news’ press conference is that markets continue to have a green light to run higher,” said Chris Zaccarelli at Independent Advisor Alliance. “This Fed isn’t going to stand in the way of the bull market.” Most economists have pegged the Fed’s June meeting as the most likely time for it to announce its first rate cut, which would begin to reverse the 11 hikes it imposed beginning two years ago. The Fed’s hikes have helped lower annual inflation from a peak of 9.1 per cent in June 2022 to 3.2 per cent. But they have also made borrowing much costlier for businesses and households.
While the Fed’s rate hikes typically make borrowing more expensive for homes, cars, appliances and other costly goods, they have much less effect on services spending, which doesn’t usually involve loans. With the economy still healthy, there is no compelling reason for the Fed to cut rates until it feels inflation is sustainably under control.
Source: Financial Digest (financialdigest.net)
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