The primary monetary authority in a country or region is referred to as the Central Bank. - The US Federal Reserve is not in a rush to decrease interest rates.
The Federal Reserve in the U.S. is now projecting only one interest rate cut for this year, down from the previous prediction of three rate hikes. According to Fed Chairman Jerome Powell, their next move will depend on the incoming data.
Most recently, the central bank of the world's largest economy kept the benchmark interest rate unchanged, in their ongoing efforts to combat rising consumer prices, within a range of 5.25% to 5.5%. They also released updated economic forecasts and increased their inflation projections slightly. Despite this, the Fed maintains the same economic outlook for the U.S.
At present, seven currency managers anticipate a single rate hike, eight expect two, and four foresee no rate cuts in 2024. The Fed's decision-makers are currently anticipating an average interest rate of 5.1% for 2023 (previously 4.6%), pointing towards a 0.25 percentage point increase. However, Powell emphasized that this is merely a projection and not a set plan. He said they may need more time to regain the certainty needed to start loosening monetary policy. Unlike the Fed, the European Central Bank (ECB) had already begun the process of lowering interest rates last week, reducing the benchmark rate by 0.25 percentage points.
Ultimately, Paul Ashworth, an analyst at Capital Economics, stated that "there's nothing that would exclude a rate cut in September." Additionally, he doesn't rule out two rate cuts in 2023. Elmar Voelker, another analyst at LBBW, described the "highly volatile impression" of U.S. macro data in recent weeks, making it difficult for both forecasters and Fed officials. If the data in the next three months consistently points to a resumption of the disinflation trend, a rate cut in September is a possible option.
The most recent data from the U.S. Labor Department shows a slight moderation in price increases. In May, consumer prices rose by 3.3% year-over-year, down from the 3.4% increase in April. But the Fed later provided slightly less optimistic figures, increasing their inflation forecast slightly. The central bank now projects an average inflation rate of 2.6% in the U.S. for 2023 (up from 2.4% in March). For 2025, they expect an inflation rate of 2.3% (previously 2.2%). Powell described these figures as "conservative" estimates.
Central banks raise interest rates to reduce demand. When interest rates increase, individuals and businesses must pay more for loans or borrow less money. This results in slower growth, as companies cannot keep raising prices permanently - and ideally, the inflation rate declines. The Fed's mission is a delicate balancing act, as they risk triggering a recession if they set rates too high. Remarkably, the U.S. economy has remained strong in spite of these high interest rates.
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- The European Central Bank (ECB) recently took a step towards lowering its interest rate, reducing the benchmark rate by 0.25 percentage points.
- Despite three expected interest rate cuts being downgraded to just one, the US Federal Reserve is not in a hurry to decrease interest rates, according to Chairman Jerome Powell.
- Central banks, including the US Federal Reserve (Fed), typically raise interest rates to reduce demand, but this can lead to slower growth and the potential risk of triggering a recession.
- The Fed's Chairman Jerome Powell stated that their next move will depend on incoming data, and that the central bank in the USA is maintaining the same economic outlook.
- Although most forecasters anticipate a single rate hike in 2024, the US Fed's decision-makers are currently expecting an average interest rate of 5.1% for 2023, indicating a potential 0.25 percentage point increase.
- Central banks, such as the Fed, play a crucial role in managing the economy by setting interest rates, which can impact prices, inflation, and overall economic health in their respective countries or regions.
