WASHINGTON (AFP) – The United States (US) Federal Reserve (Fed) is highly likely to keep interest rates unchanged later this week, as policymakers contend with a recent uptick in inflation that has sharply cut the chance of a summer start to interest rate cuts.
The Fed’s decision to hike interest rates and then hold them at a 23-year high has helped to significantly lower elevated inflation, although it remains stuck firmly above the US central bank’s long-term target of two per cent.
Since the start of this year, the Fed’s favoured inflation measure has accelerated, hitting an annual rate of 2.7 per cent in March, while economic growth has slowed, and the labour market has remained robust.
The current environment, analysts say, is likely to lead the rate-setting Federal Open Market Committee (FOMC) to hold rates at their current level of between 5.25 and 5.50 per cent for longer than previously thought.
“Another round of elevated inflation data is likely to lead to a more hawkish-leaning message at the May FOMC meeting,” economists at Deutsche Bank wrote in a recent note to clients.
At the most recent FOMC meeting in March, policymakers pencilled in three quarter percentage-point rate cuts this year, although Fed Chair Jerome Powell also warned that inflation was “still too high”.
The data since the March 20 decision has only reinforced that message, pushing policymakers – including Powell – to dial back their optimism over rate cuts.
Fed Governor Christopher Waller told a conference in New York last month that it is “appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data”.
